Royal Dutch Shell (LON:RDSB) has cut their dividend as earnings fall due to the ongoing COVID-19 crisis and volatility in the price of oil.

Shell has reduced their first quarter dividend to 16 cents, down from 47 cents in the same period a year ago.

Royal Dutch Shell shares opened 4% lower in London on Thursday.

The deterioration in the macroeconomic picture due the pandemic was instrumental in Shell’s decision to cut their sacrosanct dividend for the first time since world war two.

“Shareholder returns are a fundamental part of Shell’s financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent,” said Chad Holliday, Chair of the Board of Royal Dutch Shell.

“Following the announcement not to continue with the next tranche of the share buyback programme, the Board has also decided to reduce the first quarter 2020 dividend and reset to 16 US cents per share.”

The chair went on to outline the board’s thinking and highlighted the preference was to maintain the strength of the balance sheet as opposed to their investor’s income, in the short-term.

“As conditions allow, the Board will continue to evaluate our capital allocation priorities between ongoing investment in our business, maintaining a strong balance sheet and increasing returns to shareholders which remains our ambition.”

Royal Dutch Shell’s decisions to cut dividends comes just days after peer BP maintained their dividend, despite an increase in net debt.

However, just as BP earnings suffered, Shell did see profit falling as the impact of lower oil prices dented revenue.

Shell reported revenue of $60.96bn in the first quarter compared to $85.66bn in 2019.

Shell reports earnings based on Current Cost of Supplies (CCS) which takes into consideration the current price of oil instead of the historic price. It also accounts for the carrying cost of oil. CCS earnings reporting means profit tends to be higher when oil prices are falling and lower when prices are rising.

Shell reported first quarter CCS earnings of $2.9bn in the first quarter, down from $5.4bn in the same period last year.