Shell Doubled Oil-Trading Profit to $2.6 Billion Last Year
Royal Dutch Shell Plc disclosed the profitability of its sprawling and secretive oil-trading unit for the first time, saying it almost doubled to $2.6 billion last year.
The scale of that result shows the importance of the trading
division to the oil major in a year when weak demand and prices hit other parts
of the business. Shell took advantage of wild price swings and a market
situation that allowed it to make money by storing oil to sell later for a
profit.
The company’s earnings from oil trading in 2020 beat the
highest ever net income at Vitol Group, the world’s largest independent trading
house, which made a record $2.3 billion in 2019. Vitol has yet to disclose 2020
results.
Shell only revealed the earnings from oil trading in its
annual report, and left power, natural gas and liquefied natural gas trading
out. Analysts suspect it was able to make similar profits from those
businesses. The result is a boon to the company amid the energy transition as
it leans on its trading prowess to push through less-profitable renewables.
Shell’s B shares were little changed at 1,507.8 pence as of
10:39 a.m. in London on Friday.
“Trading operations are dismissed by the market as
unsustainable” and don’t add a “serious” premium to a company’s valuation,
Sanford C. Bernstein analyst Oswald Clint said in a note. However, the
disclosure shows “real value creation which will transfer over into renewable
power.”
BP Benefits
Rival BP Plc made a similar disclosure last year when its
Chief Executive Officer Bernard Looney revealed trading typically boosted
returns by 2 percentage points a year, suggesting it makes annual profit of as
much as $2.5 billion. The London-based major is also making a push into
renewables, while scaling back its oil production.
The two European energy giants are best known for their oil
and gas operations, but they’re also two of the world’s largest commodity
traders. Between them, Shell and BP move more than 20 million barrels of oil
and refined products a day, much more than the volumes they pump out of the
ground.
Yet trading has always been kept a closely guarded secret,
with executives typically only making mentions of the units’ performance with
general platitudes.
In the second quarter of last year, when supermajors’
balance sheets were savaged by the impact of the coronavirus on oil prices,
their trading units saved them from posting quarterly losses. Still, valuations
for European oil companies remain in the doldrums and investors are still not
rewarding them for climate strategies that remain unproven.
“Each day investors understand the rationale and the proposition
more, but understandably they want to see results, they want to see execution,”
BP’s Looney said Thursday in a webinar.
Comments
Post a Comment