Oil troubles may lead to a drop in profits for a prominent FTSE 100 company
Shell's Q2 Earnings Forecasted to Fall Amid Oil Price Volatility and Geopolitical Tensions
Shell, the British-Dutch multinational oil and gas company, is bracing for a potential decline in its Q2 2025 earnings due to volatile oil prices and geopolitical uncertainties.
The current price of Brent crude stands at around $70 per barrel, a significant drop from the prices seen earlier in the year. This drop is attributed to increased OPEC+ production and worsening conflict in the Middle East.
The volatility in oil prices has taken a toll on Shell's profits. Analysts have forecasted that Shell's integrated gas division will earn $1.8bn (£1.3bn) for the second quarter, a significant decrease from the $2.7bn (£2bn) earned in the same quarter of the previous year.
Moreover, Shell's chemicals and products arm is expected to slip into a $28m loss for the second quarter, a stark contrast to the $1.1bn profit it made in the same quarter of the previous year. The predicted losses in the chemicals and products arm are due to the uncertain geopolitical environment.
Shell issued a "tepid" update to investors earlier this month, flagging weaker trading results at the integrated gas division and losses at the chemicals and products arm. This comes after the company announced a fresh strategy in March to cut spending and boost investor returns, aiming to strip out a cumulative $5-7bn a year by the end of 2028.
Despite the challenging environment, Shell raised its dividend by four per cent at the end of the last financial year. However, investors will be watching closely to see what the latest quarterly dividend will be alongside the results on Thursday.
The company's earnings for the first half of 2025 are predicted to be $9.3bn (£6.9bn), a significant decrease compared to the $6.29bn (£4.68bn) made in the same period of the previous year.
Upstream production is forecasted to drop significantly in Q2. Integrated gas production is now expected to be between 900-940 thousand barrels of oil equivalent per day (kboe/d), a downward revision from 890-950 kboe/d.
LNG (Liquefied Natural Gas) volumes are also slightly revised down to an estimated maximum of 6.8 million tonnes (MT) for the quarter, marginally below prior estimates but slightly better than Q1 output.
Shell shares were up about 5% year-to-date before the latest Q2 warnings, but the market reacted negatively with a 2% drop on the profit warning.
In summary, oil price declines driven by increased OPEC+ production and geopolitical uncertainties are causing Shell’s Q2 upstream production and trading profits to underperform expectations, leading to a cautious market reaction to their earnings outlook.
No detailed final Q2 earnings figures have been released yet, but the trend is clearly towards lower profitability and production compared to earlier forecasts due to the volatile macro environment and geopolitical factors affecting global oil supply and demand dynamics. The second quarter earnings report will be published by Shell on Thursday.
[1] Shell Q2 earnings outlook hit by oil price volatility, geopolitical tensions
[2] Shell cuts gas production estimates ahead of Q2 results
1) Despite the increased oil production by OPEC+ and ongoing geopolitical tensions contributing to volatile oil prices, Shell's integrated gas division and chemicals and products arm are anticipated to have reduced earnings for Q2 2025, as forecasted by analysts.
2) Ahead of the forthcoming Q2 results, Shell has revised its gas production estimates, projecting output to be between 900-940 thousand barrels of oil equivalent per day, due to the unfavorable macroeconomic climate and geopolitical factors impacting global energy markets.
