Oil Trading Bonanza Saves Quarter for Shell and Total

(Bloomberg) – Royal Dutch Shell Plc and Total SE were saved by what many believe would be the worst quarter for the oil and gas industry thanks to their vast business operations.

Investors had already been warned that the coronavirus epidemic had affected almost all segments of the energy giants’ businesses – from foreclosure, upstream, to long-term value of the property. The companies said on Thursday that the profits from buying and selling oil were offset.

Their merchants, about whom nothing has ever been reported in the wider world, gave strong profits, both companies said. In keeping with tradition, Shell and Total did not reveal how much money their trading operations made, but indicated that they were able to exploit the extreme price volatility during April’s record supply.

“Trading in this quarter shows how unique this potential is,” Shell Quarter executive Ben van Bairden said in an interview with Bloomberg Television. “Taking advantage of all kinds of intermediaries that opened up in unusual parts of the world, and working with this tremendous live market information” gave Shell an advantage, he said.

Surprise profit

Shell’s adjusted net income in the second quarter was $ 638 million, down 82% from the same period a year earlier but far better than the average analyst estimate of a $ 664 million loss. There was an astonishing gain of $ 126 million overall, with a total loss of $ 443 million expected.

Those figures include tens of billions of dollars of retentions on the value of the two company’s assets due to declining oil and gas prices, which had already been disclosed to investors.

Shell’s B share fell 0.3% to 1,178.4 pence in London at 8:52 am. Total rose 0.9% to 32.74 euros in Paris.

Although better known for its oil fields, refineries and filling stations, Shell, Total and BP PLC also run in-house oil trading businesses that can handle more than 25 million barrels a day of raw and products, independent commodities. Can dwarf trading houses such as Glencore plc and Trafigura Group.

Those actions were deployed with full force during the second quarter when the Kovid-19 lockdown and the war between Saudi Arabia and Russia caused a combination of slowdown demand, which meant the oil market deepened in the price structure Was.

Contango trading involves filling onshore storage or oil tankers with cheap crude as well as selling it in the forward market at high prices. It is easy for any trader to access the logistics and infrastructure of a major oil company.

Van Bairden sang tango trades as a source of trading profits in Brent crude, international benchmarks, and many other crude streams. He said Shell never disclosed how much money its traders make, but there were clues in its quarterly statement.

Its refining and trading business provides adjusted net income of $ 1.5 billion between April and June, up 20 times from the same period last year. Given that part of Shell’s business that actually produces fuel, one of its worst quarters suffered with lower margins and sales volumes, it is possible that the bulk of those income came from the business.

CEO Patrick Pouyanne said overall similar conditions are “the same with gas prices reducing refining margins due to historical price declines and weak demand.” Nevertheless the company made a profit due to the “superior trading performance”. Contego also helped Norway’s business division of Equinor ASA, which is much smaller than Shell, which posted a record $ 1 billion profit in the second quarter.

Not every major oil company was able to avoid the expected losses. Italian oil giant NI Spa, which also published earnings on Thursday, reported a loss of 714 million euros ($ 839 million) and announced a dividend cut. Shell reduced its payout in the first quarter, while Total has maintained its dividend.

(Updated with Shell CEO’s comment in the fourth paragraph.)

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