Shell’s refinery operations are expected to achieve unprecedented profit margins per barrel of fuel in the third quarter, with forecasted earnings soaring to $42 compared to $24 in the previous quarter. This comes amid persistent global fuel shortages and disruptions caused by geopolitical tensions affecting key oil and gas-producing regions.
The company’s trading update on Wednesday underscored the impact of these market dynamics, highlighting that refinery profit margins have nearly doubled from their previous records. The $42 margin per barrel outstrips the earlier peak of $28 set during the initial months of the Russia-Ukraine conflict.
Market dynamics driving refinery profits
The widening gap between crude oil costs and refined fuel prices is fueling these elevated margins. While crude prices have eased to around $100 a barrel from peaks above $115 in spring — supported by a partial resumption of Gulf oil exports — fuel prices including diesel continue to rise, exacerbated by damaged refineries in the Middle East and Russia. This disparity enables refineries, particularly in the U.S. and Europe, to capture higher profits by processing oil into refined products.
Shell’s substantial second-quarter profit of nearly $10 billion ($7.5 billion) was more than double the earnings from the same period last year, marking its second highest quarterly profit on record. The company’s market value surged to a record £36.23 per share at the end of September, boosted by rising European gas and diesel prices despite a retreat in global crude prices.
European refining capacity and strategic integration
Shell, along with French energy peer TotalEnergies, operates some of Europe’s largest refinery complexes. TotalEnergies has also benefited from the crisis, with its leadership noting how European refineries, once seen as a liability, have transformed into highly profitable assets amid the energy turmoil.
European gas prices have more than doubled over the summer, with the regional benchmark reaching €70.50 (€60) per megawatt-hour in August. Despite damage to Shell’s Gulf gas processing facilities reducing output by about one-third from prewar levels of 900,000 barrels of oil equivalent per day (BOED), recent acquisitions have expanded its production forecast.
Production outlook and acquisitions
Shell now anticipates gas production between 740,000 and 780,000 BOED in the current quarter, a significant upward revision from prior estimates. This boost is largely due to the acquisition of Canada’s ARC Resources, which added approximately 370,000 barrels per day of oil and gas production and was completed in early September.
Global oil prices have softened in the third quarter but remain elevated, with Brent crude averaging $85.60 per barrel compared to $68.14 during the same period last year. Diesel’s price premium over the global oil benchmark has surged beyond $100 per barrel, underscoring record profits in refining.
