…As oil price falls to $78 after Trump’s request to OPEC
By Charles Ebi
Shell is expected to post lower annual profit than the previous year next week after the energy giant was hit by weak oil prices and faltering demand for the fossil fuel.
The London-listed company is scheduled to announce its financial results for the calendar year 2024 on Thursday.
Analysts have forecast that it will post earnings of £24.1bn for the year, down from £28.3bn in 2023.
It comes after a year in which oil prices have steadied and demand has fallen—partially as a result of the growing popularity of electric vehicles.
The oil supermajors, including US giants ExxonMobil and Chevron, have all suffered falling margins in their oil refining businesses this year as a result.
That came after record profits for the fossil fuel companies in previous years after oil prices spiked during the global energy crisis.
The 2025 period could bring more weakness in oil prices, analysts said, with the US, Canada and Brazil set to increase their production and continued weakness in demand from the key Chinese market.
Separately, Shell said earlier in January that its Liquefied Natural Gas ,LNG, production fell during the final quarter.
The company is the world’s largest trader of LNG, which makes up a significant part of many countries’ energy supplies.
The company said this was because of “lower feed” gas the amount of raw gas used in the process and fewer cargoes carrying the product than in the previous period.
Derren Nathan, head of equity analysis at Hargreaves Lansdown, said, “Shell’s recent trading statement revealed that while most business units have been trading broadly in line with previous guidance, the production and liquefaction ranges for integrated gas have been lowered.
“These are set to come in below third-quarter levels, reflecting planned maintenance at its processing facility in Qatar, as well as the timing of shipments from offshore gas fields.
“The weakness should be partially offset by an improved outlook for corporate costs.
“As ever, investors are likely to have a watchful eye on the outlook for shareholder distributions, with buyback programs of at least three billion dollars announced in each of the last 12 quarters.
“Of course, no further payouts can be guaranteed. And with a new financial year underway, expect an update on the company’s capital allocation priorities”.
Meanwhile, Oil prices dropped yesterday after the United States President, Donald Trump called on OPEC to reduce prices following the announcement of wide-ranging measures to boost U.S. oil and gas output in his first week in office.
Brent crude futures dropped 35 cents, or 0.45%, to $78.15 a barrel by after settling 21 cents higher on Friday.
U.S. West Texas Intermediate crude was at $74.26 a barrel, down 40 cents, or 0.54%.
Sanctions could have disrupted oil supply, as Colombia last year sent about 41% of its seaborne crude exports to the U.S., according to data from analytics firm Kpler.
Trump’s repeated call on Friday for the Organization of the Petroleum Exporting Countries to cut oil prices to hurt oil-rich Russia’s finances and help bring an end to the war in Ukraine, weighed on oil markets.
“One way to stop it quickly is for OPEC to stop making so much money and drop the price of oil … That war will stop right away”,Trump said.
Trump has also threatened to hit Russia “and other participating countries” with taxes, tariffs and sanctions if a deal to end the war in Ukraine is not struck soon.
Russian President Vladimir Putin said on Friday that he and Trump should meet to talk about the Ukraine war and energy prices.
“They are positioning for negotiations” said John Driscoll of Singapore-based consultancy JTD Energy, adding that this creates volatility in oil markets.
He added that oil markets are probably skewed a little bit to the downside with Trump’s policies aimed at boosting U.S. output as he seeks to secure overseas markets for U.S. crude.
“He’s going to want to muscle into some of the OPEC market share so in that sense he’s kind of a competitor”, Driscoll said.
However, OPEC and its allies including Russia have yet to react to Trump’s call, with OPEC+ delegates pointing to a plan already in place to start raising oil output from April.
Both benchmarks posted their first decline in five weeks last week as concerns eased about sanctions on Russia disrupting supplies.
Goldman Sachs analysts said they do not expect a big hit to Russian production as higher freight rates have incentivised higher supply of non-sanctioned ships to move Russian oil while the deepening in the discount on the affected Russian ESPO grade attracts price-sensitive buyers to keep purchasing the oil.
“As the ultimate goal of sanctions is to reduce Russian oil revenues, we assume that Western policymakers will prioritize maximizing discounts on Russian barrels over reducing Russian volumes”, the analysts said in a note.
Still, JP Morgan analysts said some risk premium is justified given that nearly 20% of the global Aframax fleet currently faces sanctions.
