Shell Says Weak Oil and Gas Trade Hit Second Quarter Profit
(Bloomberg) — Shell Plc (SHEL) said its second-quarter results will be undermined by weaker contributions from the energy giant’s fabled oil and gas trading operation.
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Contributions from trading and optimization are expected to be “significantly lower” for the second quarter compared with the first for segments that span oil and gas trading, London-based Shell said in an update on Monday that saw its shares fall.
Shell’s sprawling-but-secretive in-house trading business is often one of its biggest profit boosters, and Chief Executive Officer Wael Sawan said in March that its traders haven’t lost money in a single quarter over the past decade. A person familiar with the matter said that the nature of second-quarter volatility — being geopolitically driven rather than about supply-demand fundamentals — was challenging.
Monday’s second-quarter update “does show how levered the company is to trading volatility,” RBC analyst Biraj Borkahataria said in a note, adding that Shell’s results in the downstream point to “a significantly worse performance” than anticipated.
Shell’s shares fell as much as 3.3% and were trading at £25.52 ($34.63) at 9:57 a.m. in London.
Sawan has focused on cutting costs, boosting reliability and shedding underperforming assets in an effort to close a valuation gap between Shell and its US competitors. The strategy, which includes refocusing the company on its core oil and gas business and an emphasis on shareholder returns, has helped Shell shares outperform its closest rivals this year but left it with questions hanging over its future oil production growth.
“This is a disappointing update from Shell, and we expect it to weigh on the shares in the near term,” Borkahataria said. “That said, just like one quarter did not make a positive trend, we do not expect this to alter the longer-term thesis.”
The weaker contribution from trading eroded an increase in margins from refining and chemicals, although the latter division is nevertheless expected to report a loss when Shell publishes its earnings results in late July.
Oil swung wildly in the quarter, diving to a four-year low in April as US President Donald Trump unleashed a global trade war and OPEC+ boosted supply. It then spiked last month as Israel struck targets in Iran, before retreating back below $70 as tensions in the Middle East calmed.
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