Shell Plc announced on Monday that its second-quarter earnings are expected to take a hit, driven by a significant decline in contributions from its renowned oil and gas trading operations.
The energy giant disclosed in a trading update that its trading and optimization segments, which span oil and gas markets, will see “significantly lower” performance compared to the first quarter, leading to a drop in its share price, according to Bloomberg.
Shell’s in-house trading division, known for its secrecy and consistent profitability, has been a key driver of the company’s financial success.
In March, CEO Wael Sawan highlighted the unit’s remarkable track record, noting it had not recorded a loss in any quarter over the past decade.
However, a source familiar with the matter attributed the weaker performance to geopolitically driven market volatility in Q2, which posed challenges distinct from typical supply-demand dynamics.
Monday’s update “does show how levered the company is to trading volatility,” Biraj Borkhataria, an analyst at RBC Europe Ltd., said in a note. “This is a disappointing update,” though “we do not expect this to alter the longer-term thesis.”
Sawan has pursued a strategy of reducing costs, enhancing operational reliability, and offloading underperforming assets to bring Shell’s valuation closer to that of its U.S. rivals.
While the focus on core oil and gas operations and boosting shareholder returns has led to strong stock performance this year, it has also sparked uncertainty about the company’s long-term oil production growth.
Shell’s output fell by nearly 100,000 barrels per day from the first quarter, mainly due to the sale of its onshore Nigeria subsidiary and scheduled maintenance—developments the company had already flagged to investors.
As the world’s largest liquefied natural gas trader, Shell expects global demand for LNG to rise by about 60% by 2040.
Its LNG Canada project, which recently began exports, is among several new developments set to boost supply worldwide in the coming years. Liquefaction volumes in the second quarter remained steady compared to the first.
