Shell has joined energy giants with a rise in profits following the sharp increase in oil prices since the beginning of the Iran war. The conglomerate reported profits of $6.92billion (£5.1billion) for the first three months of the year, jumping from $5.58billion in the same period last year.
The sharp increase in profit surpassed analysts’ expectation as the Middle East crisis mount more pressure on the international oil market, more especially the closure of the Strait of Hormuz, which usually bears about 20 percent of the global supplies of oil and liquid natural gas (LNG), resulting to the increase of prices of oil since US-Israel war with Iran.
Rival oil giant BP, had recently reported that its profits for the first three months of the year had more than doubled. Other oil firms have also reported bumper results, with Norway’s Equinor announcing $9.77billion profit in the first three months of the year, its highest quarterly profit for three years. Shell chief executive, Wael Sawan said:
“Shell delivered strong results enabled by our relentless focus on operational performance in a quarter marked by unprecedented disruption in global energy markets. “The safety of our people remains our priority as we work closely with governments and customers to address their energy needs.” Like BP, one of the factors behind Shell’s profits rise was better results from its oil trading business.
Before the conflict began, the price of Brent crude, the global benchmark for oil prices, was around $73 a barrel. Since then, oil has seen sharp swings – peaking above $120 at one point, but also falling below $100 on other occasions as speculation has swirled over when the Strait of Hormuz will reopen.
The big movements in the oil price that have been seen since the Iran war began can widen the gap between buying and selling prices, which enables traders to make bigger profits. Shell’s profits were also boosted by higher margins at its refining business, which turns crude oil into finished products such as petrol and jet fuel.
However, the company said its oil and gas output had fallen by four percent compared with the final three months of last year due to the conflict. Shell’s LNG production in Qatar has been shut down since early March because of the conflict, and its Pearl GTL site in Qatar has been damaged by attacks.
Shell recently announced a move to buy Canadian shale producer, ARC Resources, for $16.4billion, which Sawan said would “deliver value for decades to come. However, the surge in profits being reported by energy firms has led to criticism from environmental groups.
Climate campaigner at Friends of the Earth, Danny Gross kicked over the soaring profits by energy giants while locals groan under harsh economies and shrunk purchasing power. “Once again, fossil fuel giants are pocketing monstrous profits while drivers are being squeezed at the petrol pump and households are set to pay higher energy bills.
“The answer is clear: strengthen the windfall tax on these indefensible profits and break our dependence on fossil fuels by powering our economy with homegrown renewables,” Gross advised. Energy firms operating in the UK are subject to a windfall tax, called the Energy Profits Levy, that was introduced in 2022 as a response to soaring profits following Russia’s full-scale invasion of Ukraine.
Labour extended the life of the tax to March 2030. However, the levy only applies to profits made from extracting oil and gas in the UK, whereas the bulk of energy giants’ earnings are made overseas. The UK accounts for less than five percent of Shell’s global oil and gas production.
Gas and electricity bills for most households in Britain are protected for the moment by the energy price cap. Until 30 June, the typical annual bill for dual-fuel households who pay by direct debit will be £1,641. However, the jump in wholesale oil and gas prices since the Iran war began means the cap is currently estimated to rise by about £200 when it is revised in July.
Meanwhile, the chief executive of Danish shipping giant Maersk told the BBC it was passing on rising costs due to the war to its customers. Vincent Clerc said the sharp rise in energy prices was adding half a billion dollars of extra costs per month to the business.
“What is really important is actually to pass on these cost increases to our customers as much as possible, so that we can protect our margin and the operations’ integrity going forward,” he said.
He added there was uncertainty over whether this would eventually lead to inflation and lower demand. Maersk’s latest earnings show operating profits slightly above analysts’ forecasts, although that was mostly for the period just before the Iran war started
