Shell shares fell on Thursday as the oil and gas giant released an outlook update that highlighted falling refining margins due to lower oil prices.
Shell said they were revising their indicative refining margin to $15/bbl, down from $28/bbl in Q2 2022. This is expected to cause $1.0bn to $1.4bn reduction in Q3 adjusted EBITDA.
Shell shares fell over 4% in the immediate reaction on Thursday.
“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 at interactive investor.
Today’s news of OPEC’s 2 million barrel production cut has supported oil prices but its difficult to see a scenario where oil rallies to 52-week highs without an additional shock to global supply.
Indeed, a slowing global economy may act as a cap on oil prices in the coming months.
Renewable Energy
While refining margins are set to fall, Shell indicated Renewable Energy adjusted earnings could be between a $300m loss and $300m profit.
With the appointment of the new CEO and his background in clean energy, investors will be watching how this segment performs as the bumper period for fossil fuels comes to an end.
Shell has invested in a range of clean energy projects in recent years and the revenue generation capabilities of these assets will be used to gauge the success of Shell’s energy transition strategy.
Shell is set to release Q3 results 27th October 2022.