Major FTSE 100 company outperforms earnings expectations despite low oil market prices
Shell, the FTSE 100 oil major, reported a mixed performance in the second quarter of 2025. The company's earnings decreased by 32%, amounting to a loss of $4.26bn, compared to the same period the previous year [1]. However, shares of Shell jumped over three per cent as markets opened, reaching 2,727.00 [2].
The decline in earnings was influenced by a variety of factors. Derren Nathan, head of equity research at Hargreaves Lansdown, highlighted lower commodity prices, a weaker trading environment, and unplanned downtime at Shell's chemical plants as contributors to the earnings hit [1].
One of the significant factors impacting commodity prices was the geopolitical environment. A mid-June 2025 escalation over Iran’s nuclear program and the associated threat to close the Strait of Hormuz, a critical chokepoint for about 20% of global petroleum shipments, caused a significant increase in the geopolitical risk premium on oil prices [1]. As a result, Brent crude prices spiked from around $71 per barrel on June 12 to $80 per barrel at the conflict’s peak on June 19 before easing back below $70 per barrel as tensions de-escalated [1].
The Energy Information Administration (EIA) raised its forecast for Brent crude prices in the second half of 2025 to average $66 per barrel, about $5 per barrel more than previously expected, with the annual average price for 2025 now forecast at $69 per barrel [1][2]. However, broader geopolitical uncertainty, including aggressive U.S. tariff policies in Q2 2025, added complexity and volatility to markets, influencing oil demand expectations and impacting global economic outlooks [4].
The spike in oil prices likely contributed to stronger revenue and profits for Shell compared to earlier in the year, as oil prices rose above the mid-year average previously projected [1][2]. However, the simultaneous factors of tariff uncertainties and fluctuating market demand could have introduced volatility and cautious investor sentiment around earnings.
Shell's Q2 production may have been affected by overall market conditions such as U.S. production forecasts, which are predicted to decline slightly after peaking in Q2 2025 at around 13.4 million barrels per day due to slowing drilling activity amid price fluctuations [2]. This production environment combined with elevated prices suggests Shell’s earnings in Q2 2025 potentially benefitted from the geopolitical-driven price spike, but broader economic uncertainties posed some risks.
In addition to the earnings report, Shell announced a $3.5bn quarterly share buyback, marking its 15th consecutive quarter of at least $3bn in buybacks [2]. Despite speculations earlier this year about a potential takeover of Shell's domestic rival BP, Shell has made clear it has "no intention" of making an offer for BP [3].
The company's earnings in the gas division fell by 30% compared to the first quarter, due to cheaper prices [1]. European gas prices decreased by 18% for the second quarter compared to the first three months of the year [5]. Nathan also mentioned that Shell's balance sheet is a key strength, but investors could start to get nervous if debt continues to rise for any length of time [6].
References:
- BBC News
- Reuters
- CNBC
- EIA
- Reuters
- CNBC
Shell's share price increased despite a significant loss in the second quarter, indicating that investors might have buoyed the markets due to the spike in sports like oil trading, where geopolitical events dramatically affect prices, such as the Iran nuclear program crisis in mid-June 2025. Moreover, the surge in oil prices could have contributed to a better performance in sports like commodity markets for Shell compared to earlier in the year.
