Shell’s refining headache

After its third-quarter oil major results back in October, some analysts were hypothesising that Shell was being overly maligned. Their reasoning was that while BP was riding high on the better-than-expected cost savings from a restructure by relatively-new chief executive Tony Hayward, Shell, with an even newer chief, still had a lot of fat left to cut.

Shell did indeed realise a further $1bn of cost savings in the fourth quarter alone, taking the full-year number to $2bn. But this quarter for the majors has been more about the dire state of refining margins, and the low price of natural gas. (2009 downstream earnings, on current cost of supplies basis, were down a whopping 95 per cent year-on-year – compared to 69 per cent overall.) But concerns about refining had already seen some similarly-timed cuts in analysts’ forecasts last month. Shell, unlike BP, was within consensus forecasts. Even on a short-term basis, the share price pain was minimal in the context of the past few weeks:

Peter Voser was only slightly less pessimistic than his BP counterpart about the outlook for refining:

Oil prices have increased compared to a year ago, but gas prices and refining margins have declined sharply, because of weaker demand and high industry inventory levels. We are not assuming that there will be a quick recovery, and the outlook for 2010 is uncertain.

Related links:
BP’s unsurprising refining surprise
(FT Alphaville)
A Q4 refining headache for the oil majors
(FT Alphaville)

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