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Shell reports sharp rise in profits
Shell has announced first-quarter profits of $6.92 billion, exceeding analyst forecasts and marking a significant increase from $5.58 billion in the same period last year. The surge follows a sharp rise in oil prices triggered by the closure of the Strait of Hormuz amid the US-Israel war with Iran.
Oil market disruption drives profits
The Strait of Hormuz, a critical chokepoint for roughly 20% of global oil and liquid natural gas supplies, has been effectively shut since the conflict escalated. This disruption has sent oil prices on a volatile trajectory, with Brent crude peaking above $120 a barrel before settling near $101. The fluctuating prices have widened the gap between buying and selling costs, boosting profits for oil traders.
Shell's refining business also benefited from higher margins, as the company processes crude oil into products like petrol and jet fuel. However, its oil and gas production dropped by 4% compared to the previous quarter due to the conflict.
Conflict impacts operations
Shell's liquefied natural gas (LNG) production in Qatar has been halted since early March, and its Pearl GTL facility in the country has sustained damage from attacks. Despite these setbacks, the company recently announced a $16.4 billion acquisition of Canadian shale producer ARC Resources, which CEO Wael Sawan said would "deliver value for decades to come."
"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,"
Wael Sawan, Shell CEO
Criticism over windfall profits
The surge in profits has drawn sharp criticism from environmental groups. Danny Gross, a climate campaigner at Friends of the Earth, accused fossil fuel companies of "pocketing monstrous profits" while consumers face higher energy costs.
"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,"
Danny Gross, Friends of the Earth
The UK's Energy Profits Levy, a windfall tax introduced in 2022, applies only to profits from oil and gas extraction within the country. Since the UK accounts for less than 5% of Shell's global production, the tax has limited impact on its overall earnings.
Energy prices and consumer impact
In the UK, household energy bills are currently capped at £1,641 annually for dual-fuel customers until the end of June. However, the cap is expected to rise by around £200 in July due to the recent spike in wholesale oil and gas prices.
Shipping industry feels the strain
Danish shipping giant Maersk has also been affected by the conflict, with CEO Vincent Clerc stating that rising energy costs are adding $500 million in monthly expenses. Clerc emphasized the need to pass these costs onto customers to protect margins.
"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,"
Vincent Clerc, Maersk CEO
Maersk's US-flagged vessel, the Alliance Fairfax, recently exited the Strait of Hormuz under US military escort after being stranded since late February. Clerc warned that any future toll charges imposed by Iran on the strait would represent a major shift for the industry, comparable to fees levied at the Suez and Panama canals.
