(Bloomberg) – Royal Dutch Shell Plc and Total SE have been rescued from the mammoth trade from what many feared would be the worst quarter in the oil and gas industry.
Investors have already been warned that the coronavirus pandemic is disrupting almost all parts of the energy giants̵7; business – from the courtyard to the energy supply to the long-term value of assets. However, it was offset by gains from the purchase and sale of oil, the company said on Thursday.
Their traders, about whom nothing appeared at all in the wider world, brought significant profits. In keeping with tradition, Shell and Total did not disclose exactly how much money their business operations made, but indicated that they were able to take advantage of extreme price volatility during April’s record supply.
“Trading this quarter shows what a unique capability it is,” Shell CEO Ben van Beurden told Bloomberg. “Take advantage of the various arbitration proceedings that have opened up in unusual parts of the world and work with this vast live market information,” Shell said.
Shell’s net income for the second quarter was $ 638 million, which is 82% less than in the same period last year, but much better than analysts’ average loss estimate of $ 664 million. Overall, it reported a surprising profit of $ 126 million compared to the expected loss of $ 443 million.
These figures do not include tens of billions of dollars in depreciation of the value of the two companies’ assets resulting from the fall in oil and gas prices, which has already been announced to investors.
Shares of Shell B fell 8.3% to 1,178.4 pence from 8:52 a.m. in London. Overall, they increased by 0.9% in Paris to EUR 32.74.
Although Shell, Total and BP BP are better known for their oil fields, refineries and service stations, they operate huge oil trading companies that can process more than 25 million barrels of oil and products per day, covering independent commodity trading houses. such as e.g. Glencore Plc and Trafigura Group.
These operations were fully deployed in the second quarter, when the combination of declining demand due to the blockade of Covid-19 and the price war between Saudi Arabia and Russia meant that the oil market was deep in a price structure called a contango.
Contango’s business is to fill offshore warehouses or oil tankers with cheap oil and simultaneously sell on the forward market at higher prices. This is easy money for any trader with access to the logistics and infrastructure of a major oil company.
Van Beurden identified the current trade in Brent crude oil, the international benchmark and many other oil flows as a source of trade profits. He said Shell never discloses how much money its traders make, but there were clues in its quarterly report.
Its refining and trading business generated adjusted net income of $ 1.5 billion between April and June, more than 20 times the same period last year. Given that part of Shell’s fuel-producing business has suffered one of its worst quarters, with low margins and sales volumes, it is possible that most of these profits come from trading.
Overall, similar conditions persisted with “gas prices falling to historic lows and margins collapsing due to weak demand,” said CEO Patrick Pouyanne. However, the company still made a profit due to “better trading performance”. Contango also helped Norwegian Equinor ASA’s business division, which is much smaller than Shell’s, make a record profit of $ 1 billion in the second quarter.
Not every major oil company has managed to avoid the expected loss. Italian oil giant Eni SpA, which also posted a profit on Thursday, lost 714 million euros ($ 839 million) and announced a reduction in dividends. Shell reduced its payout in the first quarter, while Total maintained its dividend.
(An update with comment from the CEO of Shell in the fourth paragraph.)
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