Shell plc SHEL, the British oil and gas giant, has mentioned that its refining margins took a significant hit in the third quarter. The company’s profit margin in the Refining segment dropped 30% compared to the previous quarter. This was mainly due to a decline in the demand for refined products globally.

The drop in refining margins due to a slowdown in economic activities globally is anticipated to affect the third-quarter earnings of major energy firms worldwide. Further, refineries entering the market are increasing competition, resulting in an oversupplied market and laying downward pressure on prices. This is also expected to weigh on the third-quarter earnings of major energy players.

Shell Provides Q3 Guidance

Shell is expected to announce its quarterly results on Oct. 31, 2024. Ahead of the earnings call, the company has provided an update, showing a substantial decline in its indicative refining margins from $7.7 per barrel (in the previous quarter) to $5.5. Furthermore, Shell mentioned that its trading results for the chemicals and oil products division would also be lower than the prior quarter. This indicates that Shell’s financial performance in these divisions might have been negatively impacted in the third quarter.

Shell is the largest trader of liquefied natural gas (LNG) globally, implying that the company trades LNG cargoes. SHEL raised its production guidance for the quarter from 6.8-7.4 million tons to 7.3-7.4. However, the company has mentioned that the trading results for the LNG segment will remain flat sequentially.

Q3 Updates From Other Energy Companies

The third quarter has witnessed a 17% decline in oil prices compared to the second quarter. This is anticipated to adversely impact the third-quarter results of many major energy firms. Exxon Mobil Corporation XOM has announced that the slump in oil prices may lower itsupstream profit by $600 million to $1 billion. Furthermore, declining refining margins are expected to reduce third-quarter earnings by up to $1 billion. XOM is expected to announce third-quarter results on Nov. 1, 2024, when the full effect of these developments will be realized.

Natural gas prices have risen in recent months, which may have a particularly favorable effect on third-quarter results of upstream companies. Many natural gas producers like EQT Corporation EQT have decided to increase their production due to the commodity’s price uptick. EQT and other U.S. gas producers scaled back production in early 2024 when natural gas prices dropped to multi-year lows. However, rising demand and favorable natural gas prices have led EQT to ramp up production once again.