Written by Ron Busu
LONDON (Reuters) – Shell (London) said on Thursday its third-quarter profit will be pressured by nearly halving oil refining margins, a collapse in chemicals margins and weak trading.
The British energy giant reported two straight quarters of record profits in the first half of the year amid soaring oil and gas prices, and stellar profits from its business operations, the world’s largest.
Its shares were down 4.3% by 0847 GMT, compared to a 1% drop for the broader European energy sector.
In an update before its results on October 27, Shell said, amid growing fears of a global economic slowdown, that indicative refining margins declined in the third quarter to $15 a barrel, compared to $28 a barrel in the previous three months.
Indicative margins for chemicals fell to negative $27 per ton from positive $86 in the second quarter after global demand for plastics declined.
Shell said lower refining margins would have a negative impact of between $1 billion and $1.4 billion on the sector’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
Shell also expects cash generation to be affected by an outflow of $2.5 billion of working capital by the end of August as a result of the significant fluctuations in oil and gas prices in recent months.
Despite the headwinds, Shell is expected to post a net profit of $10.5 billion in the third quarter, according to Refinitiv’s average of analyst forecasts. That compares with net profit of $11.5 billion in the second quarter.
“Overall, we view the statement as disappointing given the weaker IG (Integrated Gas) trading result, along with another influx of working capital,” Biraj Purkhataria, an analyst at RBC Capital Markets, said in a note.
“We expect to see consensus cuts on the back of this update,” he added. RBC has a “superior” recommendation for Shell.
Shell’s third-quarter LNG and gas trading results are expected to be “significantly lower” due to lower seasonal demand as well as “material differences between paper and physical perception in a volatile and volatile market.”
Oil trading is expected to align with the previous quarter.
US competitor ExxonMobil The New York Stock Exchange (NYSE) on Tuesday indicated strong operating profit in the third quarter as natural gas earnings offset weak refining and chemicals.