6th Oct 2022 15:28
(Alliance News) - Shell PLC warned on Thursday that a fall in indicative refining margins will cost it at least USD1.0 billion.
In an update for its third quarter ended September 30, the London-based oil and gas firm said it expects an indicative refining margin of USD15 per barrel, down 46% from USD28 in the previous quarter.
This, it explained, will have a negative impact for Products of around USD1.0 billion to USD1.4 billion on third quarter adjusted earnings before interest, tax, depreciation and amortisation.
For analysts at UBS, this performance was weaker than expected and was driven primarily by Integrated Gas where Shell flagged that trading will be "significantly lower" compared to the second quarter of this year.
It anticipates the unit's production of 890,000 to 940,000 barrels of oil equivalent per day, compared to 938,000 a year ago.
The oil major explained this was the "result of seasonality and substantial differences between paper and physical realisation in a volatile and dislocated market."
In addition, Shell expects its Upstream production to be around 1.8 million to 1.9 million barrels of oil equivalent per day, down from 2.1 million it produced in the third quarter of 2021.
Russ Mould, investment director at AJ Bell, said fans of the business might have been "metaphorically throwing popcorn at the screen" at the disappointing production levels and weaker refining and gas trading.
"For all that Shell has benefited from the surge in energy markets in 2022, it is not immune from a slowdown which will impact demand for refined products," he added.
In the first half of 2022, Shell said earnings surged by two-thirds as it benefited from a sharp rise in oil prices following Russia's invasion of Ukraine.
For the six months to June 30, adjusted earnings before interest, tax, depreciation and amortisation was USD42.18 billion, up 67% from USD25.20 billion last year.
Revenue grew 59% to USD184.26 billion from USD116.18 billion a year ago, while marketing sales volumes fell 4.3% to 2.4 million barrels per day from 2.5 million a year ago.
"Shell enjoyed record profits in the first and second quarter, spurred by a surge in underlying oil and gas prices following Russia's invasion of Ukraine. However, since June, oil has posted four consecutive months of declines, with Brent crude down by around 25% even after this week's countertrend rally," said Victoria Scholar, head of investment, interactive investor.
Brent oil was quoted at USD93.62 a barrel on Thursday afternoon in London, up from USD93.34 late Wednesday. The North Sea benchmark's year-to-date high is around USD138 a barrel.
"In what is a notoriously cyclical business, Shell is grappling with a dysfunctional and volatile gas market as well as expectations of softening oil demand, particularly from China as the global economy cools," she continued.
On Wednesday, OPEC and its Russia-led allies announced a major cut in output.
The 13-nation OPEC cartel and its 10 Russian-led allies agreed to reduce two million barrels per day from November at a meeting in Vienna, said Iran's OPEC Governor Amir Hossein Zamaninia.
It is the biggest cut since the height of the Covid pandemic in 2020. Scholar said this development could resume the uptrend for oil "with an increasing feeling of bullishness returning among analysts".
"However," she cautioned, "if the cartel fails to reignite the uptrend for brent and WTI, Shell may struggle to score further quarters of sky-high profits and share price outperformance."
Shares in Shell were down 3.4% at 2,297.00 pence on Thursday afternoon in London. In past year, the stock has risen 39%.
By Heather Rydings; [email protected]
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