Business & Investment

Shell doubled oil trading profits to $ 2.6 billion last year

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Royal Dutch Shell Plc said it was the first to disclose the profitability of a vast, secretive oil trading unit, almost doubling last year to $ 2.6 billion.

The scale of the results shows the importance of the trading sector to oil majors in the year when low demand and price slumps hit other parts of the business. Shell was able to take advantage of the volatile price fluctuations and market conditions to make money by storing oil and selling it later for profit.

The company’s revenue from oil trading in 2020 exceeded the record high net income of Vitol Group, the world’s largest independent trading company, and reached a record $ 2.3 billion in 2019. Vitol has not yet disclosed the results for 2020.

In its annual report, Shell revealed only revenues from oil trading, leaving trading for electricity, natural gas and liquefied natural gas. Analysts believe they were able to make similar profits from these businesses. As a result, the company, in the midst of an energy shift, benefits from relying on its trading capacity to drive unprofitable renewables.

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Shell’s B share rose 0.4% at 1,510.8 pence at 1:29 pm in London on March 12.

Sanford C. Bernstein analyst Oswald Clint said that “trading operations have been rejected by the market as unsustainable” and will not add “serious” premiums to corporate valuations. However, this disclosure does indicate “true value creation for the transition to renewable energy.”

Benefits of BP

Rival BP Plc made a similar disclosure last year by CEO Bernard Looney, suggesting that the transaction would typically increase revenue by 2 percent per year, bringing annual profits to about $ 2.5 billion. London-based majors are curtailing oil production while expanding renewable energy.

Bernstein estimates that BP earned $ 2.9 billion from last year’s oil and commodities trade and $ 1 billion from gas. In the case of Shell, we estimate that LNG trading will bring an additional $ 2.6 billion. Anglo-Netherlands Major is the world’s largest trader of liquefied fuels.

Europe’s two energy giants are best known for their oil and gas operations, but they are also two of the largest commodities traders. Between them, Shell and BP move over 20 million barrels of oil and refined products daily. This far exceeds the amount pumped from the ground.

Nevertheless, transactions are always strictly adhered to, and executives usually only refer to the unit’s performance in general etiquette.

Their trading unit saved them from recording quarterly losses when the supermajor balance sheet was devastated by the impact of the coronavirus on oil prices in the second quarter of last year. Still, the valuations of European oil companies remain sluggish and investors are not rewarding them for climate strategies that have not yet been proven.

BP’s Rooney said in a webinar on March 11th, “Investors understand the rationale and suggestions better every day, but of course they want to see the results, they want to see the implementation. I have. “

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Shell doubled oil trading profits to $ 2.6 billion last year Shell doubled oil trading profits to $ 2.6 billion last year

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