Shell (SHEL.US) stated on Monday that due to the overall economic weakness and the decline in global demand, the company's refining margins for the third quarter will drop significantly quarter-on-quarter, and the earnings from product trading have also decreased, with the chemical business expected to incur a loss.
In recent months, global refining margins have been under pressure due to the slowdown in economic activity and the commissioning of new refineries. In a trading update ahead of the quarterly results announcement on October 31, Shell indicated that its refining margins for the third quarter fell by nearly 30%, from $7.7 per barrel in the previous quarter to $5.5.
The indicator was actually slightly higher in chemicals, but the company still stated that it expects the business to experience a "marginal loss." Shell said that the trading performance of its chemicals and petroleum products division is expected to be lower than in the second quarter.
Furthermore, Shell, the world's largest liquefied natural gas (LNG) trader, raised its LNG production guidance for this quarter from the previously forecasted range of 6.8 to 7.4 million tons to 7.3 to 7.7 million tons. LNG trading performance will be on par with the previous quarter.
The company also increased its upstream oil and gas production forecast for this quarter from 1.58 million barrels per day to 1.78 million barrels per day to a new range of 1.74 million barrels per day to 1.84 million barrels per day.
Last week, Shell's biggest competitor, Exxon Mobil (XOM.US), warned that falling oil prices and declining refining margins would reduce its third-quarter earnings by $1.6 billion. Due to concerns about the global oil demand outlook, oil prices fell by 17% in the third quarter, marking the largest quarterly drop in a year. On the last trading day of the quarter, Brent crude futures closed at $71.77 per barrel.
In what is typically one of the most demand-intensive seasons, the unexpected weakness has forced major players in the oil market to adjust, with OPEC and its allies postponing the restart of some idle capacity. However, due to tensions in the Middle East, oil prices have rebounded.
Although international oil giants have braced for a decline in profits, there has been no indication so far of a reduction in returns to investors. French oil and gas producer TotalEnergies has pledged to continue repurchasing shares and increasing dividends next year due to the launch of new projects.