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Shell Downgraded by HSBC on Refining, Investment Plan

By Matthew Campbell and Jonas Bergman

July 6 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, was downgraded by HSBC Holdings Plc on costs for unconventional crude projects such as oil sands in Canada and possible weak refining margins.

The company was downgraded to “neutral” from “overweight” and the 12-month target price for the Class B shares in London was lowered to 1,650 pence from 2,060 pence, HSBC said in a report dated today. The shares traded in Amsterdam were lowered to 19 euros from 23 euros.

Shell’s investment program has “above-average exposure” to oil sand, gas-to-liquid and liquefied natural gas projects, the bank said. It’s also more exposed to weakness in the market for refining middle distillates such as kerosene and heating oil than most of its competitors, HSBC said. The fuels are consumed by the manufacturing industry, which remains in a slump in Europe and elsewhere, the bank said.

Refiners this year have cut output to limit losses made from turning a barrel of oil into fuels. The International Energy Agency said in a report on June 29 that refineries in rich nations will run at 75 percent capacity as the global recession saps demand for fuel.

Repsol YPF SA, Spain’s largest oil producer, and OMV AG, central Europe’s largest, may also be affected by weakness in middle distillates, the bank said, while ENI SpA of Italy, BP Plc, StatoilHydro ASA and BG Group Plc are less exposed.

“The refining margins of gasoline are still reasonably high compared to middle distillates,” Colin Morton, a fund manager at BWD Rensburg Ltd. in Leeds, U.K, said. BP, for example, “is more biased toward gasoline.”

Shell’s B shares closed down 35 pence, or 2.3 percent, at 1,466 pence in London. They have fallen 15 percent this year.

To contact the reporter on this story: Matthew Campbell in London at [email protected].

Last Updated: July 6, 2009 12:22 EDT and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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