Shell Sees $1 Billion Gain in Refining on Record Fuel Prices

(Bloomberg) -- Shell Plc said surging margins from fuel production could have added more than $1 billion to the earnings of its refining business last quarter, when gasoline prices broke records in several countries. 

The trading update from the London-based energy giant is the first indicator of just how much cash was flowing into the coffers of major oil companies due to the inflationary surge in the price of gasoline, which rose above $5 a gallon in the US for the first time. 

While the rising cost of energy is strengthening the oil majors after several tough years, it risks a political backlash. US President Joe Biden has directly called on fuel retailers to cut prices and companies are facing windfall taxes in some countries. 

Shell's indicative refining margin jumped to $28.04 a barrel in the second quarter, up from $10.23 in the first three months of the year, the company said in a statement on Thursday. That increase is expected to have a positive impact of between $800 million and $1.2 billion on the results of the company's products division, compared with the prior period.

The European oil major also benefited from the stronger outlook for energy. It expects to reverse previous writedowns on asset values by $3.5 billion to $4.5 billion write-up after revising up its long-term oil price assumptions. Shell took a $3.9 billion impairment in the first quarter stemming from its planned exit from assets in Russia.

Trading and optimization results in Shell's sprawling integrated gas unit fell from the previous quarter, when the unit had “exceptional” trading opportunities. Its Renewables and Energy Solutions division, is expected to report adjusted earnings of between $400 million and $900 million for the second quarter amid an “exceptional market environment,” according to the statement. 

(Updates with reverse impairments in fifth paragraph.)

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