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Thursday, 1 August, 2002, 12:12 GMT 13:12 UK
'Wrong' oil price hits Shell profits
Shell petrol station
Shell says the oil-price outlook depends on the US and Middle East
Shell, the world's third biggest oil company, has blamed an infuriating crude price for a 38% fall in profits.

The Anglo-Dutch firm said the average oil price of $25.05 a barrel over the April to June quarter was too low to support the revenues achieved last year, when Brent crude earned $27.40 a barrel.

Shell's chairman Phil Watts
Phil Watts: "Worst refinery market in living memory"
Yet the price was still too high to allow Shell's refineries to thrive.

"Weak product demand combined with excess supply and firm crude oil prices maintained severe pressure on refining margins," Shell said.

The firm's net profit, adjusted to reflect current oil prices, of $2.2bn for the quarter was lower than City analysts had forecast, and Shell itself had hoped.

"The results are frankly not as good as we wanted," chairman Phil Watts said.

Shell shares stood down 18p at 418p in lunchtime trade.

Dismal market

The refinery slump was worst felt at Shell's Rotterdam operations, which saw margins plunge to $0.30 a barrel, compared with $2.45 a barrel a year before.

In Singapore, Shell refinery operations took only $0.25 a barrel over the quarter.

Refining conditions were the "worst in living memory", chairman Phil Watts said.

Overall earnings from Shell's refining division were, at $326m, more than two thirds down on a year before.

Oil output surge

While oil production soared 11%, largely through the inclusion of operations bought with the takeover of Enterprise Oil, lower prices saw earnings in Shell's production division slide by 19% to $1.8bn.

"The benefit of an increase in hydrocarbon production was more than offset by lower hydrocarbon prices," Shell said.

Prospects for a revival in the oil price depended on the pace of US economic recovery, and developments in the Middle East, the firm added.

Shell's chemicals division reported a 12% rise in earnings to $122m, largely due to an increase in sales volumes.

Dividend raised

Shell's figures come the day after rival BP reported a 36% decline in profits, to $2.2bn, over the quarter.

But, like BP, Shell said it would increase its interim dividend despite the tougher conditions.

And Mr Watts said Shell knew "what we have got to do" to improve its performance, with cost cuts high on the agenda.

The firm needed to cut costs by $75m at Enterprise Oil, by $260m im its oil products unit and $220m at chemicals business Basell, Mr Watts told a press conference.

Analysis of the oil market, OPEC, and the alternatives

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30 Jul 02 | Business
15 Jul 02 | Business
02 May 02 | Business
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