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Shell profits soar after bumper Q1

Profits, dividends and outlook up for Shell and other majors
Shell profits soar after bumper Q1
  • Royal Dutch Shell reports March quarter underlying earnings well above both last quarter and a year ago
  • Dividend increase by 4 per cent confirmed 

The UK oil majors have seen profits soar due to the retracement in crude prices and enhanced contributions from their gas businesses. This was abundantly clear in BP's (BP.) recent quarterly update, and is also evident in Royal Dutch Shell's (RDSB) Q1 figures.

Shell’s CCS earnings (current cost of supplies) for Q1 came in at $4.35bn (£3.18bn), a sizeable step-up from the $2.76bn recorded a year earlier.

The oil price has kept above $60 a barrel (bbl), even as Opec-plus announced supply would increase from next month. Goldman Sachs has forecast a 5.2m barrel-per-day (bopd) demand increase in the next six months, which would be the largest leap ever. Global demand is usually around 100m bopd, but the pandemic resulted in a reduction of approximately 10 per cent in 2020. 

Head of oil markets at consultancy Rystad Energy Bjornar Tonhaugen said that optimism was backed by North American and European recovery prospects but warned that wasn’t the entire picture. 

“Major obstacles are coming ahead and the market will have to carefully negotiate a big demand bump that will result from the worsening situation in India,” he said. 

“To make matters worse – for now – crude storage in the US is filling up rather than being relieved, worrying traders about oil balances.” 

Shell announced last month it would increase its quarterly dividend by 4 per cent, and has confirmed the new 17.35¢ payout level. 

The strengthening profits came from both oil and gas divisions. Upstream moved to adjusted profits of $963m from a $700m loss in the December quarter, while integrated gas renewables and energy solutions saw a quarter increase to $1.4bn. The average realised oil price for the quarter was $56 a barrel (bbl), compared to under $40/bbl in the last quarter.

Even if the most optimistic forecasts around oil demand don't come true, the Q1 figures suggest that Shell will do well in the near-term. But we are taking a longer view that its weak emissions reductions plans will be more important over the long haul. Sell at 1,405p. 

Last IC View: Sell, 1,584p, 12 Mar 2021