Shell has signalled the breakneck growth that racked up record profits for the oil company earlier this year will slow as weaker gas trading and lower refining margins hit recent profits.
The oil company was criticised for making huge profits during the cost of living crisis as Russia’s invasion of Ukraine pushed up prices of oil and gas. But Europe’s largest oil and gas firm said on Thursday that margins in its refining business had nearly halved, hitting its third-quarter profits which are due to be announced later this month.
Oil prices have fallen back from about $120 a barrel in June to about $90 as concerns of a recession in Europe and rampant global inflation weighed on commodity prices. The Opec cartel of oil-producing nations and its allies on Wednesday agreed to cut oil production by 2m barrels a day to increase prices, angering the White House.
Shell said its refining margins in the three months to the end of September were about $15 a barrel, against $28 a barrel in the previous quarter. The company expects this to have a “negative impact of between $1bn and $1.4bn” on its third-quarter underlying profits.
Refining margins have been under scrutiny since the summer when the then former business secretary Kwasi Kwarteng ordered the Competition and Markets Authority to study the fuel retailing market. The CMA raised concerns over the size of the margins being taken by refineries.
Shell also said its chemicals business had been hit by a drop in the global demand for plastic, from $86 per tonne in the previous quarter to minus $27 per tonne over the last 12 weeks.
The company blamed a “volatile and dislocated” market for a hit to earnings in its gas trading arm. Oil and gas traders had seen a boom in profits earlier this year when the outbreak of war triggered chaos in commodity markets.
The RBC Europe analyst Biraj Borkhataria said: “Overall, we see the statement as disappointing given the weaker integrated gas trading result, coupled with another working capital outflow.”
AJ Bell’s investment director, Russ Mould, said: “For all that Shell has benefited from the surge in energy markets in 2022, it is not immune from a slowdown which will impact demand for refined products.”
Shell’s shares, which are up more than 30% this year, fell nearly 4% in early trading. The slowdown in momentum comes as Shell’s head of gas and renewables, Wael Sawan, prepares to take over from the longstanding chief executive, Ben van Beurden, at the end of the year.
Van Beurden said this week that governments may need to tax energy companies to fund efforts to protect the poorest from soaring bills. The government introduced a windfall tax on oil and gas firms operating in the North Sea earlier this year but has resisted calls to expand the levy to electricity generators.