Decrease in Shell's profits by nearly one-third surpasses projected estimates
In the second quarter of 2023, global benchmark Brent crude prices averaged around $67 a barrel, marking a decrease from the $85 a barrel seen in the same period the previous year. This decrease in crude oil prices is attributed to OPEC+ beginning to unwind self-imposed production cuts aimed at supporting the market.
Despite the lower prices, Shell managed to deliver solid earnings for the quarter. The company's second-quarter adjusted earnings reached $4.264 billion, surpassing the analyst poll average of $3.74 billion provided by the company. This earnings figure, however, represented a 32% decrease compared to the same period last year.
Shell's cash flow from operations in the second quarter was lower than the same period last year, amounting to $13.5 billion. Together with $2.1 billion in dividends, shareholder distributions amounted to 46% of operating cash flow. This is the 15th consecutive quarter Shell has spent at least $3 billion on share buybacks.
The company's share buyback programme pace remains at $3.5 billion for the next three months. Shell's shareholder distributions fell within its 40% to 50% guided range. However, the company's definition of net profit tumbled due to a drop in oil prices.
In terms of costs, Shell has achieved $3.9 billion in cost cuts compared to 2022. The company's cost-cutting programme aims to save between $5 billion and $7 billion by 2028's end.
Regarding the current impact of OPEC+ production decisions on global crude oil prices, OPEC+ has been increasing production significantly since April 2025, aiming to regain market share lost to non-OPEC producers like the US and Brazil, even though crude prices have been low. This increase in production risks an oversupply scenario, but global crude prices have remained somewhat buoyed by risk premiums associated with geopolitical tensions, trade tariff negotiations, and Chinese strategic reserve purchases.
Analysts forecast that crude prices could fall from around $73.56/b in July 2025 to as low as $58/b by December 2025, driven by an estimated 2 million bpd surplus in late 2025 due to OPEC+ output hikes versus demand, representing the largest surplus since 2018 (excluding COVID-19 impacts). Additional factors depressing prices include resumed oil exports from Iraq’s Kurdish region and tariff uncertainties influencing demand growth expectations.
However, there is no direct public evidence from the available data about OPEC+ production decisions affecting Shell’s Q2 2023 earnings, as those earnings predate the current production hikes. The company's earnings in any quarter could be influenced by prevailing crude prices and market dynamics at that time, which depend on OPEC+ policies, global demand, and supply factors. Therefore, Shell’s Q2 2023 earnings likely reflected earlier market conditions unaffected by these most recent production changes.
- The decrease in crude oil prices, coupled with OPEC+ increasing production significantly, could potentially lead to a lower earnings figure for Shell in future quarters, as lower prices might negatively impact the company's sales in the finance industry.
- Despite the industry-wide decrease in crude oil prices and the subsequent impact on the energy sector, Shell has strategically focused on cost cuts in an attempt to maintain profitability in the finance sector by saving between $5 billion and $7 billion by 2028's end.
