(Bloomberg) – Royal Dutch Shell Plc and Total SE have been saved from what many feared would be the worst quarter ever for the oil and gas industry, thanks to their mammoth trading.
Investors have already been warned that the coronavirus pandemic has damaged almost all parts of the energy giant̵7;s businesses – from the court to the upper reaches, to the long-term value of assets. But this was offset by profits from the purchase and sale of oil, the company said on Thursday.
Both companies said their traders, about whom little was once open to the world, made a strong profit. According to tradition, Shell and Total did not disclose exactly how much money their trades earned, but hinted that they were able to take advantage of the extreme price volatility during the April record offer.
“This quarter, trading shows what a unique ability it is,” Shell CEO Ben van Beerden said in an interview with Bloomberg. “Taking advantage of all the arbitrage that has opened up in unusual parts of the world, and working with this vast living market information,” this has given Shell an advantage.
Profit from the surprise
Shell’s adjusted net income was $ 638 million in the second quarter, down 82 percent from a year earlier, but much better than the average analytical loss of $ 664 million. In total, an unexpected profit of $ 126 million was reported, compared to the expected loss of $ 443 million.
These figures exclude tens of billions of dollars of deferred ownership of the two companies’ assets due to falling oil and gas prices, which have already been disclosed to investors.
Shares of Shell B fell 0.3% to 1,178.4 pence at 8:52 a.m. in London. In Paris, it rose 0.9% to 32.74 euros.
Although better known for its oil fields, refineries and gas stations, Shell, Total, and BP Plc operate huge domestic oil trading companies that can handle more than 25 million barrels a day of raw materials and products that stifle independent trading houses, such as Glencore Plc and Trafigura Group.
These operations were fully deployed during the second quarter, when a combination of declining demand due to the shutdown of Covid-19 and the price war between Saudi Arabia and Russia meant that the oil market was deep in a price structure called contango.
Contantgo trade consists of filling marine storages or oil tankers with cheap raw materials and simultaneously selling them on foreign markets at higher prices. This is easy money for any trader who has access to the logistics and infrastructure of a large oil company.
Van Beurden singled out contingent trade in Brent oil, an international benchmark, and many other commodity 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 statement.
Its processing and trading business generated adjusted net income of $ 1.5 billion for the period from April to June, which is more than 20 times higher than the same period last year. Given that part of Shell’s fuel-efficient business has experienced one of the worst quarters to ever have low margins and sales, it is possible that most of this revenue came from trading.
In general, they withstood similar conditions when “gas prices fell to historic lows and oil reserves fell due to weak demand,” said CEO Patrick Puyan. And yet the company still made a profit due to the “advantages of trade.” Contact also helped Norway’s trading division Equinor ASA, which is much smaller than Shell, achieve record profits of $ 1 billion in the second quarter.
Not every large oil company was able to avoid the expected losses. Italian oil giant Eni SpA, which also posted profit on Thursday, lost 714 million euros ($ 839 million) and announced a reduction in dividends. Shell has already reduced its payout in the first quarter, while Total maintained the dividend.
(Update with Shell CEO’s comment in the fourth paragraph.)
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