Oil giant Shell reported a sharp fall in profits. Why are its shares rising?

The net profit of the British oil and gas giant Shell for the quarter decreased by almost a third, but turned out to be much higher than analysts predicted. At the same time, Shell's famous trading division, which traditionally allows the company to earn good money in periods of volatility, this time faced problems due to the unpredictability of the market.

Adjusted earnings, which Shell considers its net income counterpart, fell 32% year-on-year and a quarter from the previous quarter, totaling $4.26 billion. That was 14% ahead of the market consensus forecast, reports.

Shell's trading division is known as one of the company's biggest sources of profit - it has not been unprofitable in any quarter in the past ten years. However, in early July, the oil and gas giant warned that trading revenues would "decline significantly" from the previous quarter. Volatility usually helps commodity traders, but in recent weeks a growing number of top energy executives, including Shell chief Wael Sawan, have complained that price spikes have become too chaotic for confident trading, noted Bloomberg.

Sawan said conditions last quarter were "challenging on all fronts". Oil markets saw sharp swings in response to the OPEC+ cartel's surprise decision to lift production curbs, as well as during Israel's brief war with Iran. "Against a backdrop of geopolitical and economic uncertainty, we have seen chain effects for both physical trade flows, commodity prices and margins in general," the Financial Times quoted Financial Times as saying of Shell's chief executive.

At the opening of trading in London, Shell shares jumped by 3%. Subsequently, the growth slowed to 1%. The company beat earnings expectations, but a $1.7 billion increase in net debt in the second quarter dampened the positive impression, reported Redburn analysts. At the same time, continued share buybacks "should be viewed favorably" by the market, said Jefferies economist Giacomo Romeo. 

According to data from FactSet, none of the analysts covering Shell's activities advise to sell its shares. The consensus rating on the British company's securities is "above market" (Overweight, corresponding to a recommendation to buy them). The average target price of Shell's American depositary receipts of $80.98 per paper implies their price appreciation by 12.9% on a one-year horizon

Oil traders face a contradiction: despite analysts' increasingly frequent warnings of a weaker market in late 2025 and into 2026, prices have so far held steady around $70 a barrel, notes Bloomberg.

Last week, France's TotalEnergies said that the market is becoming oversupplied as OPEC+ gradually lifts production restrictions and slowing global growth reduces demand. Additional oil is not only coming from OPEC+ countries: Norway's Equinor reported that its new Johan Castberg field is operating at full capacity, and the launch of an offshore project in Brazil is scheduled in the near future, recalls the agency.

The International Energy Agency and the U.S. Energy Information Administration (EIA) in early July raised their surplus estimates for 2026. Both forecast that supply will exceed demand by record amounts since the pandemic, said the article.

All this is in sharp contrast to the current situation: stocks in key oil storage facilities remain low and the market structure signals a supply deficit. Refining margins are now well above seasonal average levels, supporting demand for crude. One of the leading oil traders Vitol Group last week reported that demand for jet fuel is growing steadily, with the number of flights reaching record levels.

Nevertheless, once summer demand subsides, a global surplus could emerge, warned JPMorgan Chase global head of exchange-traded commodities strategy Natasha Kaneva. She said in an interview with Bloomberg that supply is rising and at some point inventory accumulation will start to show up in Organization for Economic Cooperation and Development (OECD) countries, including the United States. This is not yet priced in, she said.

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