Shell can’t do the contango forever

Shell has managed to narrowly avoid a stinging quarterly loss this quarter with the help of a trading unit which was able to exploit the violent swings in oil prices to turn a huge profit.

Chaos in the energy markets, triggered by the virus, has broadly been bad for oil supermajors like Shell. But it has been good for their trading divisions. 

The London-listed oil giant scraped a meagre profit on Thursday, posting adjusted profits of $600m (£453m) in the second quarter, down more than 82pc from $3.5bn a year ago.

Analysts had predicted that the company would fall to its first quarterly loss in more than a decade, but instead Shell’s trading business came to its rescue, capitalising on the volatility of recent months.

Profits from Shell’s refining and trading division soared to $1.5bn, nearly 30 times higher than they were in 2019, despite refinery earnings falling by 25pc.

Wild swings in the price of oil, which fell briefly to less than $1 a barrel in April, allowed Shell’s giant trading team – the largest in the world – to place bets on future crude prices and rake in massive profits. 

The Anglo-Dutch group also took advantage of its storage capacity, snapping up oil at bargain rates and then selling it on later once the price had recovered again.

The fact that Shell’s trading division took lemons and made lemonade was not lost on chief executive Ben Van Beurden.

“We do contango on steroids,” he said, referring to the practice of buying oil when it is cheap and storing it until it is expensive again. “This quarter, trading shows what a unique capability it is,” he added.

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