Shell slows refining, takes up to US$800m hit after oil crash

London

ROYAL Dutch Shell slowed refining output and will write down up to US$800 million in the first quarter of 2020 after a dramatic drop in oil demand due to the coronavirus.

In an update ahead of Q1 results, Shell said it expects "significant uncertainty" over oil and gas prices and demand as a result of falling consumption.

With the global lockdown of three billion people - roughly 40 per cent of the world's population - demand for fuel has been in free fall, forcing Shell to lower its refining output by around 13 per cent.

The sharp drop in demand, which could reduce consumption by 25 per cent compared to 2019, poses a significant threat to Shell, which is the world's largest petrol retailer with more than 40,000 service stations.

The Anglo-Dutch company lowered its oil and gas price outlook for 2020, resulting in a post-tax impairment charge in the range of US$400 million to US$800 million, it said.

Benchmark Brent crude prices fell by around 65 per cent in the first quarter and were trading at below US$23 a barrel on Tuesday as a result of a sharp drop in global demand due to the coronavirus and pledges by Saudi Arabia and Russia to raise output.

Shell shares were up 5 per cent in early trading in London.

Shell said last month it would lower spending by US$5 billion to US$20 billion or less and suspend its vast US$25 billion share buyback plan in an effort to weather the downturn.

Shell's Q1 oil production was expected to fall by 4.5 per cent versus the fourth quarter of 2019, while liquefied natural gas (LNG) volumes were set to decline by 2.3 per cent.

Shell, which sells products produced by its refineries and other suppliers, gave a wide range for oil products sales volumes of six million to seven million barrels per day (bpd) for the first quarter of 2020. At the middle point, the figure is slightly higher than in Q4 of 2019.

Shell slowed down its refining output in the first three months of the year due to weaker demand for fuels. Refinery utilisation is expected to be between 80 per cent to 84 per cent, while 93 per cent to 96 per cent of its refining capacity is available.

Refining profit margins were also expected to be lower, Shell noted. The company said its cash liquidity remained strong after getting a new US$12 billion revolving credit facility commitment, lifting its available liquidity from US$30 billion to US$40 billion. REUTERS