Oil majors BP and Shell face headwinds as Q2 earnings approach
As BP and Shell prepare to report their second quarter (Q2) results, both oil giants are grappling with challenges in their refining businesses and shifting market dynamics. Here's what investors can expect.
BP braces for significant hit
BP has warned investors of a potential $3 billion impact on its Q2 results. This includes a $2 billion writedown related to scaling back operations at its Gelsenkirchen refinery in Germany. The company also anticipates a $500-700 million reduction in earnings due to "significantly lower realised refining margins." Additionally, BP expects weakness in oil trading, though gas trading is projected to be "average." These factors caused BP's shares to drop over 3.5% following the announcement.
Shell faces similar pressures
While Shell has not issued a specific earnings warning, the company is also facing headwinds. The oil major may take an impairment charge of up to $2 billion related to halting work on a sustainable aviation fuel project in Rotterdam. Shell has also sold a Singapore refinery and is shifting its focus from low-carbon investments towards growing its gas business.
Broader industry challenges
Both companies are dealing with wider pressures in the global refining business. ExxonMobil, for instance, has warned of a $1.1-1.5 billion negative impact on Q2 profit due to lower refining margins. More broadly, declining demand for fuels is affecting refining operations across the industry.
Positive notes
Despite the challenges, there are some bright spots for these oil majors. Shell has announced plans to develop a new gas field off Trinidad and Tobago. The company is also maintaining its share buyback program, with a new $3.5 billion buyback announced alongside quarter one (Q1) results. Furthermore, Shell's Q1 adjusted earnings of $7.73 billion beat market expectations, demonstrating some resilience in the face of industry headwinds.
Investor focus
As these oil majors report, investors will be watching for several key indicators. Updates on cost-cutting measures and operational efficiencies will be crucial, as will progress on balancing traditional oil and gas businesses with clean energy investments. Dividend policies and share buyback programs will also be under scrutiny. Finally, investors will be keen to hear the companies' outlook for oil and gas prices and refining margins in the second half of 2024.
BP & Shell – what do the brokers say?
BP currently has an ‘outperform’ rating on the SmartScore available on the IG platform. Meanwhile, of 12 brokers covering the stock, nine have ‘buy’ ratings, with two ‘holds’ and one ‘sell’.
BP Smart Score
BP Broker rating
Shell also has an ‘outperform’ rating, while of 14 broker ratings, 12 have ‘buy’ recommendations, with two ‘holds’.
Shell smart score
Shell broker rating
BP share price – technical analysis
BP shares have gone nowhere over the past seventeen months. The price has rallied towards 540p three times since the beginning of 2023, and fell back each time. Conversely, it has bottomed out around 430p twice, in June 2023 and January 2024, while in July 2024 it found support around 440p.
It now finds itself trading around 460p, with an initial bounce targeting trendline resistance from the April highs. If it can clear this then it may move to rest the early July highs around 490p. A reversal back below 440p brings the 430p lows back into view.
BP share price chart
Shell share price – technical analysis
Shell has been in a steady uptrend since late 2021, and while the shares have seen two big declines since early 2023, the price continues to rally overall.
The price soared to a record high in April 2024, and while it has fallen back since, it has twice found support around £27.00, the highs from October 2023.
Further gains target the early July high at £29.00, before moving on to the record high at £29.56.