Shell ( SHEL.US): Losses on Middle East assets drag down production; strong profits from the oil trading business offset the impact via hedging

ZhiTong Finance APP learned that Shell (SHEL.US) said that although its assets in the Middle East were severely battered by the Iran conflict, its oil trading business still boosted its first-quarter results. The oil major released a 2026 first-quarter trading update report on Wednesday. Due to “chaos” in the global oil supply system caused by a geopolitical crisis, increased market volatility provided the company with an excellent arbitrage opportunity, causing the performance of the oil trading business to be “significantly higher than” the previous quarter. This strong performance on the trading side effectively offset the financial losses on the production side caused by force majeure.

Shell’s earnings guidance this time is the first time that a major oil company has issued profit expectations since crude oil to energy prices such as aviation fuel surged due to the Middle East war. The war caused the key Hormuz Strait shipping route to come close to a standstill. The retaliatory airstrikes launched by Iran against the Persian Gulf region were triggered by U.S.-Israeli strikes in late February, damaging refineries, oil fields, ports, and natural gas facilities, including Shell’s core assets at the Ras Laffan large integrated complex in Qatar. In addition, Shell also has joint ventures in places including Iraq, Oman, and the UAE.

It is worth noting that Ras Laffan has the world’s largest LNG (liquefied natural gas) export terminal—before suffering “severe damage,” the terminal supplied about one-fifth of seaborne natural gas globally. It also has the world’s largest gas-to-liquids facility—this facility was also damaged in missile attacks, and is expected to take about one year to repair. Shell is a key partner for both facilities.

As a direct result, Shell has been forced to lower its first-quarter LNG production outlook from the previous range of 920k to 980k barrels per day to 880k to 920k barrels per day. Previously, Shell had predicted that its first-quarter total natural gas production would be 920k to 980k barrels of oil equivalent per day.

The company’s Chief Executive Officer, Wael Sawan, warned that the continued heightened tension in the Middle East not only disrupts production facilities, but also threatens fuel security in South Asia and Europe through breaks in the logistics chain, with shortages of aviation fuel and diesel already appearing in some regions.

The geopolitical turning point came on the eve of Shell’s earnings release, as the United States reached a two-week interim ceasefire agreement with Iran. The oil prices, which had surged to above $120 per barrel earlier due to the Hormuz Strait blockade, saw a sharp pullback.

Under the terms of the agreement, Iran must fully open this globally most important energy shipping lane, greatly easing market panic. International crude oil prices fell by more than 15% at one point in a single day, dropping back below the $100 level, but they are still up more than 50% year to date. Shell said that its first-quarter refining profit margin rose from $14 per barrel in the fourth quarter to $17.

In addition, due to sharp swings in commodity prices, Shell expects a large outflow of operating funds of $10 billion to $15 billion this quarter, which places higher demands on the company’s short-term cash flow management. This also reflects the very high cost of capital consumption in the current energy trading environment.

On the balance sheet, Shell disclosed a non-cash net debt increase of $3 billion to $4 billion, mainly driven by changes in long-term vessel charter variable components rather than direct operational borrowing. The company’s official 2026 first-quarter earnings report and dividend announcement is scheduled to be released on May 7, 2026.