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Shell, like the other major oil and gas companies, suffered this year as the Covid-19 pandemic decimated global demand
Chris Ratcliffe / Bloomberg
Royal Dutch Shell‘s
Shares fell 6% on Monday as the oil company released a disappointing update and oil prices plummeted over fears of a new strain of the coronavirus causing Covid-19.
The Anglo-Dutch company said it would depreciate the value of assets between $ 3.5 billion and $ 4.5 billion in the fourth quarter, bringing the total cost to more than $ 22 billion this year. Fourth-quarter charges related to Appomattox’s assets in the US Gulf of Mexico, the closure of oil refineries and onerous liquefied natural gas contracts.
It added that the adjusted profit would show a loss in the ‘current price environment’. The results in the marketing activities, which helped the company return to profit in the third quarter, would be “significantly lower” in the fourth quarter, along with the results of the oil business.
Read:A new Covid-19 strain is shutting down Europe. What you need to know.
The largest oil and gas companies in the world suffered record losses this year in the particularly difficult second quarter as the Covid-19 pandemic decimated global demand. Shell cut its dividend by two-thirds in April – the first cut since World War II, underlining the magnitude of the crisis.
The FTSE 100-listed energy giant posted a write-down of $ 16.8 billion in the second quarter as it lowered its long-term outlook for oil prices and revised its future energy demand assumptions. After better performance in the third quarter, the company posted a write-off of $ 1.1 billion. Developments in the Covid-10 vaccine in recent months have also boosted oil demand and oil prices, as have Shell’s stock in recent months
However, Monday’s update, along with falling oil prices, has dampened optimism again. Concerns about a new strain of coronavirus in the UK, which Prime Minister Boris Johnson said could be 70% more transmissible, has slashed oil prices. Several European countries, including France and Italy, have suspended travel to and from the UK, raising fears about the demand for oil. Brent futures declined 3.4% to $ 50.51 and West Texas Intermediate crude oil futures fell 3.5% to $ 47.55. Shares of rival
BP
fell 5%, while the French energy giant
Total
decreased by 4%.
Read:Royal Dutch Shell surprises with dividend increase after profit has been beaten
In particular, the plight of the industry in 2020 has accelerated the shift to green energy and a low-carbon future. BP, Total and Shell have all stepped up their strategies to become net zero carbon by 2050. Investors will keep a close eye in February, when Shell will provide a strategy update on the green transition.
Looking forward. RBC Europe analyst Biraj Borkhataria said Shell’s fourth quarter outlook was disappointing, especially in the context of the company’s strong run in recent weeks, but stressed that it was not a long-term issue.
“While this is disappointing and could affect short-term performance, we don’t think this will materially change the investment dossier in 2021,” he said. He also expected Shell to provide further details on a “measured transition strategy” in February. RBC maintained an outperform rating on the stock with a target price of 2,000p.
The optimism of the vaccine drove oil prices and the sector’s inventories soared in November and most of December, but the reality has now taken hold. The road ahead, at least until the full impact of the different vaccines manifests itself, will be bumpy.