Oil Buying and selling Bonanza Saves the Quarter for Shell and Overall

(Bloomberg) — Royal Dutch Shell Plc and Total SE were saved from what many feared would be the worst quarter ever for the energy industry, thanks to their mammoth trading operations.

Investors had already been warned that the coronavirus pandemic had hammered almost all parts of the energy giants’ businesses — from forecourts, to upstream, to the long-term value of assets. But that was offset by gains from buying and selling oil, the companies said on Thursday.

Their oil traders, about whom little is revealed to investors, delivered strong profits, both companies said. In keeping with tradition, Shell and Total didn’t disclose exactly how much money their trading operations made, or how they earned it.

Shell’s adjusted net income was $638 million in the second quarter, down 82% from the same period a year earlier but far better than the average analyst estimate of a $664 million loss. Total posted a surprise profit of $126 million, compared with expectations for a loss of $443 million.

Those figures exclude tens of billions of dollars of writedowns on the value of the two company’s assets resulting from the slump in oil and gas prices, which had already been disclosed to investors.

Shell’s B shares fell 0.3% to 1,178.4 pence as of 8:03 a.m. in London. Total fell 1% to 32.13 euros in Paris.

“Results reflected lower realized prices for oil, LNG and gas, lower realized refining margins, oil products sales volumes and higher well write-offs,” Shell said in a statement. “This was partly offset by very strong crude and oil products trading.”

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Although better known for their oil fields, refineries and filling stations, Shell, Total and BP Plc also run huge in-house oil trading businesses that can handle more than 25 million barrels a day of crude and products, dwarfing independent commodity trading houses such as Glencore Plc and Trafigura Group.

In the second quarter they successfully exploited so-called contango plays as oil prices hit rock-bottom. The trade consists of filling up onshore storage or oil tankers with cheap crude and simultaneously selling it on the forward market at higher prices. The move helped the trading division of Norway’s Equinor ASA, which is much smaller than Shell’s, to make a record $1 billion gain in the second quarter.

In addition to taking advantage of a contango structure, Shell also made money on its jet-fuel book in particular, according to a person familiar with the matter.

Not every major oil company was able to avoid the expected loss through trading. Italian oil giant Eni SpA, which also published earnings on Thursday, lost 714 million euros ($839 million) and announced a dividend cut.

Shell already cut its payout in the first quarter, while Total has maintained its dividend.

(Updates with Total earnings in first paragraph.)

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