Shell’s segmental earnings trend
Let’s analyze how Royal Dutch Shell’s (RDS.A) segmental earnings performed in the second quarter. Then, we’ll discuss Shell’s third-quarter earnings expectation.
Shell’s adjusted upstream profit rose four-fold YoY (year-over-year) to $1.5 billion in the second quarter mainly due to higher oil prices. Shell’s integrated gas earnings doubled YoY to $2.3 billion in the second quarter driven by higher volumes and realizations. However, Shell’s downstream earnings declined 34% YoY to $1.7 billion in the second quarter due to the weaker refining environment.
ExxonMobil’s (XOM) upstream earnings increased from $1.2 billion in the second quarter of 2017 to $3.0 billion in the second quarter. Chevron’s (CVX) adjusted Upstream segment’s earnings rose from $1.0 billion in the second quarter of 2017 to $3.3 billion in the second quarter.
Shell’s third-quarter segmental outlook
Shell’s upstream realizations are expected to be higher in the third quarter—compared to the third quarter of 2017. Crude oil, Brent, and WTI prices have increased in the third quarter—compared to the third quarter of 2017. Brent and WTI prices stood at $52 per barrel and $48 per barrel, respectively, in the third quarter of 2017. The prices rose to $76 per barrel and $69 per barrel, respectively, in the third quarter. Usually, everything else being equal, a rise in crude oil’s price suggests a likely increase in Shell’s upstream earnings in the third quarter—assuming that the volumes don’t decline YoY.
However, the earnings from Shell’s Downstream segment will likely fall. The cracks have narrowed in the third quarter—compared to the third quarter of 2017. For instance, the US Gulf Coast WTI 3-2-1, the benchmark crack, has narrowed 15% YoY to $17 per barrel in the third quarter.
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