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Bloomberg: Showa Shell Drops to 2 1/2-Year Low on Rating Cut (Update2)

By Shigeru Sato

Jan. 16 (Bloomberg) — Showa Shell Sekiyu K.K., the Japanese unit of Royal Dutch Shell Plc, dropped to the lowest in more than 2 1/2 years in Tokyo trading after Morgan Stanley cut the stock’s rating to “underweight” from “equal-weight.”

Showa Shell fell 72 yen, or 6.7 percent, to close at 1,002 yen on the Tokyo Stock Exchange. That is the lowest since May 18, 2005, when the stock closed at 1,000 yen.

The surge in benchmark New York Oil prices to records has increased retail prices for auto and heating fuels in Japan, cutting local demand for petroleum products. Sluggish fuel sales have eroded earnings at Showa Shell and other refiners, prompting them to diversify to compensate for weakness in their main business.

“With expensive crude oil contributing throughout calendar 2007, we factor for some increase in petroleum product prices, but still expect this to be an earnings burden as a full-scale price shift is unlikely,” Lalita Gupta, an energy analyst at Morgan Stanley in Tokyo, said in her report dated Jan. 15.

Benchmark oil prices have risen 78 percent in the past year, reaching a record $100.09 a barrel on Jan. 3.

To contact the reporter on this story: Shigeru Sato in Tokyo at [email protected] .

Last Updated: January 16, 2008 02:55 EST

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