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Financial Times: Oil prices driven by speculation and political tension, says Shell

By Dino Mahtani in London
Published: October 26 2007 03:00 | Last updated: October 26 2007 03:00

Royal Dutch Shell, Europe’s biggest oil company, warned that record high oil prices were being driven by speculation and political tension, not a lack of supply.

The comments by Peter Voser, chief financial officer, came as the group reported that third-quarter earnings, on a current cost of supply basis, had fallen 8 per cent to $6.39bn as a result of lower refining margins and sales volumes.

But record high oil prices meant that profit attributable to shareholders rose 16 per cent to $6.916bn.

“The price seems to be driven by some speculation and also has a political premium in it rather than actually some of the fundamental drivers,” Mr Voser said at a news conference.

Exploration and production revenues fell to $3.51bn, from $3.74bn in the past year, hit by lower volumes, higher tax charges and higher costs.

Third-quarter production slipped to 3.14m barrels of oil equivalent a day from 3.25m b/d a year ago.

Gas and power earnings were $568m, down from $781m a year ago, as a result of lower marketing and trading results and a planned shutdown of the Bintulu gas-to-liquids plant in Malaysia.

Downstream earnings also fell, to $1.65bn from $2.16bn a year ago, mainly due to lower refining margins. Refinery processing intake was down 1 per cent.

Jeroen van der Veer, Shell’s chief executive, said: “Given the weaker industry refining margins we have seen in the quarter, these are satisfactory results.”

The figures were ahead of analysts’ forecasts and Shell’s A-shares rose 12p to £20.68 in London. Analysts had on average been expecting cost of supply net profit, excluding non-operating items, of $5.52bn, according to a Reuters’ poll.

Some analysts said that the results were buoyed by Shell’s corporate line, which saw $413m in earnings, reflecting higher insurance underwriting income, improved interest income and favourable foreign exchange movements. This has raised questions about whether core operations will be able to ride out some of the geopolitical and market conditions surrounding the oil and gas industry.

Shell expects to revive production from complex operations including a gas-to-liquids plant in Qatar and from its Canadian oil sands projects.

The quarterly dividend rises 14 per cent to 36 cents.

Digging up returns, Page 20

Copyright The Financial Times Limited 2007

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