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Highlights:
- Refining Margins Drop: Shell reported a 30% decline in refining profit margins due to weaker global demand and slowing economic growth.
- Increased LNG Production: The company raised its LNG production forecast, maintaining steady trading performance despite challenges in other areas.
- Upstream Output Revised Upward: Shell boosted its upstream oil and gas production outlook, partially mitigating the impact of falling refining margins.
Shell PLC (LSE:SHEL) delivered a trading update that signals an industry-wide rebasement of forecasts as it grapples with significant declines in refining profit margins. In its third-quarter update, Shell reported a nearly 30% drop in indicative refining margins, falling from $7.7 per barrel in the second quarter to $5.5, largely due to weaker global demand and increasing economic challenges, particularly in China.
Decline in Refining Margins and Trading Earnings
Shell's announcement highlights a sharp drop in refining margins, reflecting a broader industry trend affected by slowing global economic growth and the start of new refineries. Weaker demand for oil products, alongside lower chemicals trading earnings, contributed to the downturn. This decline in margins mirrors Exxon Mobil’s earlier warning about the waning impact of crude prices, which fell by 17% in the third quarter.
LNG Production Forecast Raised
Despite the challenges in refining, Shell raised its liquefied natural gas (LNG) production forecast for the quarter. The company now expects to produce between 7.3 million and 7.7 million metric tons, an upward revision from its earlier estimate of 6.8 million to 7.4 million metric tons. This reflects the steady trading performance in the LNG market, offering a positive note amidst the otherwise subdued outlook for oil products and refining.
Upstream Oil and Gas Production Outlook Improved
Shell also revised its forecast for upstream oil and gas production, raising it to a range of 1.74 million to 1.84 million barrels of oil equivalent per day, up from its previous guidance of 1.58 million to 1.78 million. This increase in production targets signals a partial offset to the weaker refining margins, bolstering Shell's overall production outlook in the challenging market environment.
