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Reuters: Shell slows refining, takes up to $800 million hit after oil crash

Ron Bousso: MARCH 31, 2020

LONDON (Reuters) – Royal Dutch Shell (RDSa.L) slowed refining output and will write down up to $800 million (649.46 million pounds) in the first quarter of 2020 after a dramatic drop in oil demand due to the coronavirus.

In an update ahead of first-quarter results, Shell said it expects “significant uncertainty” over oil and gas prices and demand as a result of falling consumption.

With the global lockdown of 3 billion people – roughly 40% of the world’s population – demand for fuel has been in free fall, forcing Shell to lower its refining output by around 13%.

The sharp drop in demand, which could reduce consumption by 25% compared to 2019, poses a significant threat to Shell, which is the world’s largest petrol retailer with more than 40,000 service stations.

The Anglo-Dutch company lowered its oil and gas price outlook for 2020, resulting in a post-tax impairment charge in the range of $400 million-$800 million, it said.

Benchmark Brent crude prices fell by around 65% in the first quarter and were trading at below $23 a barrel on Tuesday as a result of a sharp drop in global demand due to the coronavirus and pledges by Saudi Arabia and Russia to raise output.

Shell shares were up 5% in early trading in London.

Shell said this month it would lower spending by $5 billion to $20 billion or less and suspend its vast $25 billion share buyback plan in an effort to weather the downturn.

Shell’s first quarter oil production was expected to fall by 4.5% versus the fourth quarter of 2019, while liquefied natural gas (LNG) volumes were set to decline by 2.3%.

Shell, which sells products produced by its refineries and other suppliers, gave a wide range for oil products sales volumes of 6 million to 7 million barrels per day (bpd) for the first quarter of 2020.

At the middle point, the figure is slightly higher than in the fourth quarter of 2019.

Shell slowed down its refining output in the first three months of the year due to weaker demand for fuels.

Refinery utilisation is expected to be between 80% to 84%, while 93% to 96% of its refining capacity is available. Refining profit margins were also expected to be lower, Shell said.

The company said its cash liquidity remained strong after getting a new $12 billion revolving credit facility commitment, lifting its available liquidity from $30 billion to $40 billion.

Reporting by Ron Bousso; Editing by Jason Neely and Edmund Blair


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