- Refining margins almost halve from previous quarter
- Upstream production disappoints
- Integrated gas division struggles
The usual trailer ahead of quarterly results from Shell (SHEL) has received raspberries from the market as the company’s performance notably deteriorated in the three months to 30 September.
There were three main areas of disappointment as the shares sank 4.4% to £22.74.
The third quarter refining margin is expected to be down 46% from the second quarter to $15 per barrel - having a $1 billion to $1.4 billion impact on earnings.
Upstream production slipped back from 1.8 million to 1.9 million barrels compared with 2.1 billion barrels for the same period in 2021.
Finally, the integrated gas arm - a real star turn in the first half of the year - is expected to see a ‘significantly lower’ outturn compared with the quarter to the end of June.
While gas prices remain elevated by historic levels they also remain highly volatile and it has been what Shell describes as a ‘dislocated’ market.
DOWNWARD TREND IN ENERGY PRICES
While oil prices have received a recent boost from OPEC’s decision to introduce deep production costs, the trend since the summer has been downwards as traders factor in the prospect of recession in major economies.
AJ Bell investment director Russ Mould commented: ‘Yesterday’s announcement of big production cuts from OPEC and a resulting boost for commodity prices should in theory be good news for Shell, which produced its usual teaser ahead of third quarter results.
‘However, fans of the business might have been metaphorically throwing popcorn at the screen as disappointing production levels, weaker refining and gas trading are expected to have a negative impact on performance.’
Mould noted that Shell will be impacted by any economic slowdown, with demand for refined products likely to be hit.
‘Chief executive Ben van Beurden’s recent comments that governments should tax oil and gas businesses to help the poorest in society may have come from a genuine place, but also show an awareness that the industry needs to be prepared for a regulatory and political backlash given the excess profit it has generated this year,’ Mould added.
DISCLAIMER: AJ Bell referenced in this article is the owner and publisher of Shares magazine. The author (Tom Sieber) and editor (Ian Conway) own shares in AJ Bell.
