There’s a Wheeler-Dealer Inside Shell
The oil major has shown it can play the markets like a commodity trader. But investors can’t trust that bumper oil-trading profits are repeatable.
Oil trading is lucrative for those who happen to have big storage tanks in the backyard.
Photographer: Daniel Acker/BloombergSharp swings in the crude price have been an unmitigated pain for the oil industry, right? Not entirely. The silver lining has been a lucrative environment for the oil majors’ trading operations. This was on stark display in the second-quarter performance of Royal Dutch Shell Plc. But it creates a challenge for investors. How do you value this unpredictable and opaque source of income?
Shell warned last month that its three-month earnings, released Thursday, would include a colossal impairment charge reflecting the impact of the pandemic on energy demand and prices. That writedown came in at $17 billion after tax. Strip this and other one-offs out of the equation, and Shell made a $638 million net profit, confounding predictions of an underlying loss.