Shell signals an end to record profits as refining margins shrink

Shell has signaled its streak of record profits will end after lower refining and chemical margins and weaker gas trading weighed on earnings in the third quarter.

Europe’s largest oil and gas company reported consecutive quarterly profits in the first half of the year as disruption to energy markets from Russia’s invasion of Ukraine in February pushed up fossil fuel prices.

But oil prices have fallen to around $90 a barrel from more than $120 a barrel in June as recession fears in Europe weighed on economic activity.

For the three months ended September, Shell said margins at its refining business were expected to be $15 a barrel, compared with $28 a barrel in the previous quarter. This would have a “negative impact of $1 billion to $1.4 billion” on adjusted earnings before interest, taxes, depreciation and amortization for the third quarter compared to the prior three-month period.

At the same time, margins in the chemicals division of the FTSE 100 group have slumped to an expected minus $27 per tonne from $86 per tonne last quarter after global demand for plastics fell.

The trading update comes ahead of Shell’s third quarter earnings release later in the month.

Shell, the world’s largest trader in liquefied natural gas, added that earnings from its integrated gas business were expected to be “significantly lower” than in the second quarter due to lower seasonal demand and the impact of a “volatile and deferred” market.

Shares of the energy company fell nearly 4 percent in early London trading on Thursday, posting gains of about 41 percent for the year.

“Overall, we view the statement as disappointing given the weaker integrated gas trading result combined with further working capital outflows,” said Biraj Borkhataria, head of oil and gas stock research at RBC Capital Markets.

Record second-quarter earnings prompted Shell to launch a $6 billion share buyback program.

The oil major ended months of speculation when he announced in September that Wael Sawan, head of gas and renewable energy, would replace Ben van Beurden as chief executive at the end of the year. Shell signals an end to record profits as refining margins shrink

Adam Bradshaw

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