Shell nearly doubles quarterly profit year-on-year as refining margins soar to record high

Shell’s adjusted earnings nearly doubled year-on-year, rising from $5.43 billion to $10.81 billion. The increase was $5.38 billion, or about 99%. Adjusted earnings are Shell’s measure of net profit. The result matters because it shows how strongly higher commodity prices and tight refined-product supplies boosted the company during the quarter.

Analysts expected Shell to report $9.92 billion for July to September, based on an LSEG-compiled consensus. Shell therefore exceeded expectations by $0.89 billion. Its quarterly profit was also the strongest since the second quarter of 2022, following Russia’s full-scale invasion of Ukraine.

The result reflects unusually favorable market conditions, not only Shell’s operations. Refining margins reached a record $42 per barrel, while disruptions linked to Middle East conflict, the Russia-Ukraine war, shipping attacks, and refinery strikes tightened supplies. Shell also announced a $5 billion share buyback for the next three months.

A refining margin is the difference between the value of refined fuels and the cost of the crude oil and other inputs used to make them. It indicates how profitable refinery operations can be. Higher margins usually give refiners more room to earn money from products such as gasoline, diesel, and jet fuel.

Shell reported an indicative refining margin of $42 per barrel. That figure mattered because it shattered the previous record of $28.04 per barrel, set in the second quarter of 2022. The increase meant the spread between refined-product prices and crude-related costs was exceptionally wide.

Such a margin helped explain Shell’s $10.81 billion adjusted earnings for the quarter. The company linked strong performance to a global squeeze on refined products. That squeeze followed conflict, attacks on ships, and disruptions at refineries, which reduced available fuel supplies while demand for products remained important.

Refining margins and fuel prices rise when fuel supplies cannot keep pace with the market. Conflict can interrupt crude exports, shipping attacks can delay or endanger deliveries, and refinery shutdowns can remove the facilities needed to make usable fuels. Each disruption tightens supply and can push prices higher.

The quarter had several overlapping shocks. The article reports a global squeeze on refined products amid Middle East conflict and the Russia-Ukraine war. Gulf-country exports were curtailed by the U.S.-Israeli war with Iran, while attacks on ships in the Strait of Hormuz disrupted a major route. Strikes on Russian refineries further reduced refining capacity.

Together, these pressures lifted prices for gasoline, diesel, and jet fuel. They also widened refining margins to a record $42 per barrel. Shell said the global energy system faced continued severe disruption, helping explain why its adjusted earnings nearly doubled to $10.81 billion.

Shell’s indicative refining margin increased from the previous record of $28.04 per barrel to $42 per barrel. The absolute increase was $13.96 per barrel. Compared with the earlier record, the new margin was about 49.8% higher, or nearly half again as large.

This was not a minor improvement. The previous record had been set in the second quarter of 2022, after Russia’s full-scale invasion of Ukraine. Shell’s new figure therefore marked a fresh peak in an already volatile period for global energy markets.

The size of the increase shows how sharply refining economics changed during the quarter. A global shortfall of refining capacity, strikes on Russian refineries, and disruptions to oil exports and shipping reduced fuel availability. Prices for gasoline, diesel, and jet fuel rose, widening the spread that refiners could earn.

Crude oil is the raw material, while gasoline, diesel, and jet fuel are products made from it in refineries. If crude deliveries fall, refineries may have less input. If refineries are damaged or shut, they cannot process enough crude. If ships are attacked or routes are restricted, both crude and finished fuels can arrive more slowly.

The article gives several examples. Gulf-country exports were curtailed, attacks affected ships in the Strait of Hormuz, and strikes hit Russian refineries. These events reduced either the flow of oil or the ability to turn oil into products. The resulting shortfall made available fuel more valuable.

Higher product prices can then widen refining margins, especially when fuel prices rise faster than crude-related costs. Shell reported a record $42-per-barrel margin during this squeeze. The same supply pressures helped lift its adjusted quarterly earnings to $10.81 billion, although disruptions made the global energy system more unstable.

A share buyback is when a company uses cash to purchase its own shares from the market. Shell’s decision directs part of its exceptional profit toward investors rather than keeping all the cash in the business or using it for other purposes. The announced program covers $5 billion over the next three months.

When shares are repurchased and cancelled or held by the company, fewer shares may remain available to investors. Existing shareholders then own a larger percentage of the company if they do not sell. With profits spread across fewer shares, earnings per share can also rise, all else being equal. Sellers receive cash for their shares.

The immediate beneficiaries are therefore shareholders who sell into the program and those who continue holding shares. The buyback also signals that Shell is willing to return money during a period of strong cash generation. However, the article does not state how the program will affect Shell’s share price or future investment.

Crude oil is a naturally extracted, unprocessed mixture of hydrocarbons. Refined products are usable fuels made after refineries process crude into different outputs, including gasoline, diesel, and jet fuel. The two are not interchangeable: crude must be processed before it can serve these everyday fuel uses.

Refineries provide the equipment and capacity for that transformation. They receive crude, separate it, and process its components into products with different uses. If refining capacity is unavailable, extra crude alone cannot guarantee enough gasoline, diesel, or jet fuel. Finished-fuel supplies can therefore tighten even when some crude remains available.

The article describes a global shortfall of refining capacity, worsened by strikes on Russian refineries. That shortage drove up refined-product prices. It also contributed to Shell’s record $42-per-barrel refining margin and helped lift adjusted quarterly earnings to $10.81 billion during the July-to-September period.