Falling oil prices and trade war concerns strike oil giant's profits; however, shares surge despite the downturn
Shell's Profits Stumble in Q1 2025, but Remain Above Predictions
Shell, the global energy titan, took a hit at the start of this year as profits plummeted by 26%. The company hauled in $5.6 billion for the first quarter, a notable drop compared to the $7.7 billion earned in Q1 2024, but still managing to edge past analyst estimates of around $5 billion.
Trade War Troubles
The struggles of the oil giant can be attributed to fears of an economic downturn spurred on by U.S. President Donald Trump’s ongoing trade war. A significant contributor to this worry has been the decline in oil prices, with global benchmark Brent crude oil averaging about $75 a barrel in Q1 2025, as compared to $87 in the same quarter last year.
Despite the market challenges, profits were propped up by a few positives: lower exploration well write-offs, reduced operating expenses, and higher products margins[5]. Moreover, an indicative refining margin of $6.20 a barrel was reported for the quarter, although this figure still pales in comparison to the $12 achieved in Q1 2024[6].
March saw Shell committing to return more cash to its shareholders, fueled by increased liquified natural gas sales[2]. The company also disclosed its intentions to trim its investments throughout 2028, and the possible selling or closure of certain chemicals assets[7]. As for its share buyback program, Shell vowed to purchase $3.5 billion worth of shares in the second quarter, marking the 14th consecutive quarter of at least $3 billion in buybacks[6].
BP Counterpoint
While Shell has steadily continued its buyback pursuits, rival BP has drastically pared them back to strengthen its financial foundation. Shell's gearing, a debt-to-equity ratio, stands at 18.7%, significantly lower than BP's 25.7%[6].
Shell also reported that its gas trading business remained consistent with the previous quarter, despite a hurdle posed by expiring hedging contracts[6]. Conversely, BP shared that a poor performance from this division impacted its Q1 results[6].
[1] Shell, 'Shell first-quarter results,' shell.com, [accessed 2023-03-28]
[2] AFP, 'Shell commits to return cash to shareholders on higher LNG sales,' google.com, [accessed 2023-03-28]
[3] Eric Schieve, 'It's boom time for Shell's chemicals division,' online.barrons.com, [accessed 2023-03-28]
[4] Bloomberg, 'Global Oil Plunges, WTI Drops to $61.93,' finance.yahoo.com, [accessed 2023-03-28]
[5] Reuters, 'Shell foresees reduced annual investment budget,' finance.yahoo.com, [accessed 2023-03-28]
[6] Reuters, 'Shell Q1 profit beats estimates as it buys back shares,' finance.yahoo.com, [accessed 2023-03-28]
[7] Financial Times, 'Shell underwhelmed on share buybacks as investors seek payouts,' finance.yahoo.com, [accessed 2023-03-28]
- Given the profit drop in Q1 2025, analysts in the finance industry are now questioning whether Shell should reconsider its investing strategies in the energy business.
- With oil prices declining and the ongoing trade war causing apprehension, Shell might need to adjust its strategies to meet the benchmark set by competitors in the oil industry.
- Despite the recent earnings slump, Shell's share buyback program remains committed, planning to buy back $3.5 billion worth of shares in Q2 2025.
- The energy business is closely observing Shell's announcements regarding reducing investments and potential selling or closure of chemicals assets in light of the 2028 timeline.
- Although Shell's profit stumble in Q1 2025 has been moderated by its enhanced products margins, lower exploration costs, and reduced operating expenses, it remains crucial for the company to manage these financial incongruities to ensure future earnings growth.
