'End of positive streak': Shell disappoints market with trading profit forecast

Oil and gas giant Shell said it expects its oil and gas trading division's profits to decline on a quarterly basis. The division had previously been one of the company's biggest profit drivers. The forecast disappointed Wall Street, with analysts warning that Shell shares would remain under pressure in the short term;

Shell warned that its earnings from integrated gas trading and optimization for the second quarter will be "significantly lower" than the first quarter. The company said this in an updated forecast released on July 7. Shell will release its second-quarter results on July 31.

The forecast disappointed investors. Shell shares fell more than 3% in London trading. The trading business has often been one of Shell's biggest profit drivers, noted Bloomberg. Shell CEO Wael Sawan said in March that Shell traders had not lost money in any quarter in the past decade. 

Nevertheless, oil and gas price fluctuations have been difficult to predict recently: the oil market has been affected by the US trade war, OPEC+ policy and the Israel-Iran war, the agency notes. According to Bloomberg's source, the past quarter turned out to be particularly difficult for Shell traders, as volatility was driven more by geopolitics than by supply and demand fundamentals.

"We view this release as weak; lower trading results were probably expected, but the outlook update points to a much weaker downstream performance than anticipated. Shell has posted consecutive positive trading updates over the past couple years, and it looks like this positive streak has been interrupted," reported CNBC analysts at RBC Capital Markets in a note. .

The preliminary outlook "will impact Shell shares in the near term," warned RBC analyst Biraja Borkahataria, who was quoted by Bloomberg. However, the analyst does not yet expect Shell to revise its long-term outlook.

Profit in Shell's European oil and gas segment is expected to decline 17% quarter-on-quarter on the back of a 10% drop in oil prices over the same period, said Jefferies analysts Giacomo Romeo and Kai Ye Lo, as reported by WSJ. Gas prices in Europe and the U.S. also fell, and those losses were only partially offset by higher refining margins, Jefferies said.

Of the 31 analysts tracking the company's stock, the majority - 26 - advise investors to Buy (Buy and Overweight). Four advise holding them (Hold) and only one advises selling them (Underweight). The analysts' consensus price target is at $80, up nearly 11% from the July 3 closing price.

- According to preliminary estimates, adjusted earnings in Shell's gas division for the second quarter will be in the range of $1.4 billion to $1.8 billion. By comparison, it was $1.4 billion in the first quarter.

- Shell also revised its gas production forecast for the second quarter - it now expects production of 900,000 to 940,000 barrels of oil equivalent per day. By comparison, the previous quarter's production was 927,000 bpd, while the previous forecast was in the range of 890,000 to 950,000 bpd. Shell's midpoint of its forecast remained unchanged at 920,000 bpd, noted the WSJ.

- In the upstream segment, Shell expects production of 1.66 million to 1.76 million barrels of oil equivalent per day. By comparison, production in the first quarter was at 1.855 million barrels per day. Shell attributes the decline to planned maintenance and the completed sale of its stake in the SPDC oil and gas venture in Nigeria.

- The company also expects second-quarter liquefied natural gas (LNG) deliveries to be between 6.4 million and 6.8 million tons instead of the previous 6.3 million to 6.9 million tons, the document said.

This article was AI-translated and verified by a human editor