Shell (LON: SHEL) shares are trading lower following the release of its first quarter 2026 update, despite indications of robust oil trading activity.
The decline follows yesterday’s announcement that the U.S. and Iran have agreed to a two-week ceasefire.
Shell’s report outlines the company’s expectations for the first quarter, cautioning that these are preliminary and subject to finalization on May 7, 2026. Heightened uncertainty due to the ongoing conflict in the Middle East casts a shadow over the outlook, impacting production and potentially driving volatility.
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Integrated Gas production is projected to be between 880 and 920 kboe/d, down from 948 kboe/d in Q4 2025. This decline reflects the impact of the Middle East conflict on Qatari volumes. LNG liquefaction volumes are expected to be between 7.6 and 8.0 MT, benefitting from the ramp-up of LNG Canada, but offset by weather constraints in Australia and outages in Qatar.
Underlying opex for Integrated Gas is anticipated to be $1.1 – $1.3 billion, with a taxation charge of $0.4 – $0.7 billion. Trading & Optimisation is expected to be in line with Q4 2025.
Upstream production is forecast at 1,760 – 1,860 kboe/d, compared to 1,892 kboe/d in the previous quarter, reflecting reduced output following the Adura JV incorporation. Underlying opex is projected at $2.0 – $2.4 billion, with a taxation charge between $1.6 – $2.4 billion, influenced by portfolio changes in Nigeria and the UK since Q1 2025.
Marketing sales volumes are anticipated to be between 2,550 and 2,650 kb/d, lower than the 2,701 kb/d reported in Q4 2025. Underlying opex is expected to range from $2.2 – $2.6 billion. However, marketing adjusted earnings are projected to be significantly higher than in Q1 2025.
The Chemicals and Products segment expects an indicative refining margin of $17/bbl, up from $14/bbl in Q4 2025, while the indicative chemicals margin is projected at $139/tonne, slightly below the previous $140/tonne. Refinery utilisation is forecast at 95% – 99%, and chemical utilisation at 81% – 85%. Underlying opex is expected at $1.7 – $2.1 billion. Trading & Optimisation is expected to be significantly higher than Q4’25.
Renewables and Energy Solutions adjusted earnings are projected to be between $0.2 – $0.7 billion, a significant increase from the $0.1 billion reported in Q4 2025. Trading & Optimisation is expected to be significantly higher than Q4’25. Corporate adjusted earnings are expected to be a loss of $0.8 – $1.0 billion, compared to a loss of $0.6 billion in the prior quarter.
Key Financial Considerations:
- CFFO: Tax paid: Expected to be $2.0 – $2.8 billion.
- Financial Derivative Instruments movements: Projected to be between $(1) – $4 billion.
- Working capital: Anticipated to be $(15) – $(10) billion, impacted by commodity price volatility.
Non-cash net-debt is expected to be impacted by a $3-4 billion increase in variable components of long-term shipping leases due to the current macro environment.
Analyst Summary: Bull and Bear Cases
Bull Case:
- Strong performance is expected from Trading & Optimisation in both the Chemicals and Products, and Renewables and Energy Solutions segments.
- Indicative refining margins have increased to $17/bbl from $14/bbl in the previous quarter.
- Marketing adjusted earnings are projected to be significantly higher than in the same quarter last year.
- Adjusted earnings for Renewables and Energy Solutions are forecast to increase substantially from Q4 2025.
Bear Case:
- Geopolitical uncertainty in the Middle East is negatively impacting production volumes and creating market volatility.
- Production is projected to decline in both the Integrated Gas and Upstream segments compared to the previous quarter.
- Marketing sales volumes are anticipated to be lower than in Q4 2025.
- Corporate adjusted earnings are expected to show a larger loss, widening to $0.8 – $1.0 billion.
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