Shell (SHEL.US): Damaged Middle East assets drag down production, big profits in oil trading business hedge impact.

Shell company (SHEL.US) stated that despite significant damage to its assets in the Middle East due to the Iran conflict, its oil trading business has boosted its performance in the first quarter. The oil giant released its 2026 first quarter trading update report on Wednesday, stating that the increased market volatility due to the political crisis at GEO Group Inc provided excellent arbitrage opportunities, resulting in the performance of the oil trading business being "significantly higher than" the previous quarter. This strong performance in trading effectively offset the financial losses from production due to force majeure. Shell's performance guidance this time marks the first profit forecast released by a major oil company since the surge in energy prices such as crude oil and aviation fuel caused by the Middle East war. The war has almost halted shipping in the critical Strait of Hormuz. Retaliatory air strikes launched by Iran in the Persian Gulf region following the attack by the US at the end of February damaged refineries, oil fields, ports, and natural gas facilities, including Shell's core assets in the vast Qatar Ras Laffan complex. Additionally, Shell has joint ventures in Iraq, Oman, the United Arab Emirates, and other locations. It is worth mentioning that Ras Laffan has the world's largest liquefied natural gas export terminal, which supplied approximately one-fifth of global seaborne natural gas before suffering "severe damage," and the world's largest natural gas processing facility, which was also damaged in the missile strikes and is expected to take about a year to repair. Shell is a key partner in both of these facilities. As a direct result, Shell was forced to lower its first-quarter liquefied natural gas (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. Previously, Shell had predicted a first-quarter comprehensive natural gas production of 920,000 to 980,000 barrels per day of oil equivalent. The CEO of the company, Wael Sawan, warned that the ongoing tension in the Middle East has not only damaged production facilities but also threatened fuel security in South Asia and Europe through disruptions in the logistics chain, with shortages of aviation fuel and diesel appearing in some regions. The turning point in the political situation at GEO Group Inc occurred on the eve of Shell's financial report release, as the United States reached a two-week temporary ceasefire agreement with Iran, leading to a dramatic pullback in oil prices that had previously soared above $120 per barrel due to the blockade of the Strait of Hormuz. Under the agreement, Iran must fully open this crucial global energy passageway, greatly alleviating market panic, with international crude prices falling by more than 15% in a single day, dropping below the $100 mark, although they remain up over 50% since the beginning of the year. Shell stated that the refining profit margins in the first quarter rose from $14 per barrel in the fourth quarter to $17 per barrel. Furthermore, due to the dramatic fluctuations in commodity prices, Shell expects a large-scale outflow of operating cash flow of $10-15 billion this quarter, which poses a higher requirement for short-term cash flow management for the company and reflects the extremely high cost of capital utilization in the current energy trading environment. In terms of the balance sheet, Shell disclosed a non-cash net debt increase of $3-4 billion related to changes in long-term ship leasing variable components, rather than direct operating debt. The company's official 2026 first quarter financial report and dividend announcement is scheduled to be released on May 7, 2026.