Shell boosted by trading – but expects gas volumes to fall sharply amid Middle East conflict

Shell has reported continued strength in its trading business but expects its gas production output to be sharply lower in the second quarter. 

The oil giant said results at its chemicals and products unit, which includes its oil trading desk, would be in line with its first quarter results. 

Shell also said ‘trading and optimisation’ earnings in its gas division were expected to be ‘significantly higher’ than in the first quarter. 

Oil majors have benefited from the price volatility prompted by the Middle East conflict. 

However, Shell today warned that gas production was expected to be between 610,000 and 650,000 barrels of oil equivalent a day (boed) in the second quarter, down from 909,000 in the first quarter, reflecting damage to its Qatari facility. 

Production at Shell’s Pearl gas-to-liquids facility in Qatar stopped in mid-March after an attack on the Ras Laffan Industrial City damaged the facility. The repairs are expected to take around a year. 

Approximately 20 per cent, or 550,000 boed, of Shell’s oil and gas production comes from the Middle East, with around 10 per cent of that Qatar-related. 

Shell shares rose 2.3 per cent or 67.00p to 2,979.50p on Tuesday, having risen 16 per cent over the past year. 

Across the group’s chemicals and products arm, the indicative refining margin is expected to improve to about $20 a barrel from $17 a barrel in the first quarter, while the indicative chemicals margin is forecast to rise to about $240 a tonne from $139 a tonne.

But Shell said that realised refining and chemicals margins remained below those benchmark levels because of market dislocations.

The London-listed firm said it expects an improvement in its working capital due to the impact of ‘unprecedented volatility’ in commodity prices. 

It now expects a cash inflow of $1billion to $6billion in the second quarter, against an $11.2billion outflow in the first quarter. 

Mark Crouch, a market analyst at eToro, said: ‘Perhaps the bigger surprise is that Shell continues to generate strong trading and refining earnings even as oil prices have retreated sharply from their geopolitical highs. 

‘Brent has given back much of the war premium and Shell’s shares are now trading below where they stood before the conflict escalated, reflecting a market that has become more concerned about slowing global growth than supply disruption.

‘That leaves sentiment looking overly cautious. Today’s update reinforces the value of Shell’s diversified model, with trading, refining and robust cash generation helping offset production setbacks and demonstrating why the company remains one of the sector’s most resilient cash machines.’