Shell PLC indicated that its oil trading division bolstered first-quarter performance, despite significant damage to its Middle Eastern assets resulting from conflict involving Iran. The energy giant released a 2026 first-quarter trading update on Wednesday, noting that increased market volatility, driven by geopolitical crises disrupting global oil supply systems, created excellent arbitrage opportunities. This led to oil trading results being "significantly higher" than the previous quarter. The strong trading performance effectively offset financial losses in the production segment caused by force majeure events. This guidance from Shell marks the first profit forecast issued by a major oil company since the Middle East conflict triggered a surge in energy prices, from crude oil to jet fuel, as shipping through the critical Strait of Hormuz nearly halted. Retaliatory airstrikes by Iran across the Persian Gulf region, prompted by a US-Israel strike in late February, damaged refineries, oil fields, ports, and natural gas facilities, including Shell's core assets at the large Ras Laffan complex in Qatar. Shell also maintains joint ventures in Iraq, Oman, and the UAE. Notably, Ras Laffan hosts the world's largest liquefied natural gas export terminal, which supplied approximately one-fifth of global seaborne gas before sustaining "severe damage," and the largest gas-to-liquids facility, which was also impaired in the missile attacks and is expected to take about a year to repair. Shell is a key partner in both facilities. As a direct result, Shell was forced to lower its first-quarter LNG production forecast from a previous range of 920,000 to 980,000 barrels per day to 880,000 to 920,000 barrels per day. The company had previously projected integrated gas production at 920,000 to 980,000 barrels of oil equivalent per day for the first quarter. CEO Wael Sawan warned that the ongoing tensions in the Middle East not only damaged production infrastructure but also threatened fuel security in South Asia and Europe due to broken logistics chains, with some regions already experiencing shortages of jet fuel and diesel. A geopolitical turning point occurred just before Shell's earnings release, as the United States and Iran reached a two-week temporary ceasefire agreement. This led to a sharp reversal in oil prices, which had previously soared above $120 per barrel due to the blockade of the Strait of Hormuz. Under the agreement, Iran must fully reopen this vital global energy passageway, significantly easing market panic. International crude prices fell more than 15% in a single day, dropping below the $100 mark, though they remain up over 50% year-to-date. Shell stated that its first-quarter refining margin increased to $17 per barrel, up from $14 per barrel in the fourth quarter. Furthermore, due to sharp fluctuations in commodity prices, Shell anticipates a large outflow of $10 billion to $15 billion in working capital this quarter, posing greater demands on short-term cash flow management and reflecting the high capital carrying costs in the current energy trading environment. Regarding its balance sheet, Shell disclosed a net debt increase of $3 billion to $4 billion, which is non-cash and primarily stems from changes in variable components of long-term vessel leases, rather than direct operational borrowing. The company's formal first-quarter 2026 financial report and dividend announcement are scheduled for release on May 7, 2026.
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