Shares of Shell (NYSE: SHEL) were down in pre-market trading on Thursday as the oil and gas major provided a third-quarter update. Shell is expected to release its Q3 results on October 27.
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Amid a global macroeconomic slowdown, Shell’s indicative refining margins dropped in Q3 to $15 a barrel from $28 a barrel in Q2. The company defines indicative refining margins as “an approximation of Shell’s global gross refining unit margin” and is based “on a simplified crude and product yield profile at a nominal level of refining performance.”
Shell expects that this deceleration in margin is like to have an adverse impact in the range of $1.0 to $1.4 billion on its Adjusted EBITDA for the products business in Q3 versus Q2.
Shell’s products business consists of industrial lubricants and oils
Another negative for the company was the drop in its indicative Chemicals business margin. This margin is expected to be a negative of $27 per tonne versus a positive $86 per tonne in Q2.
This decline in margin is anticipated to have a negative impact in the range of $300 million to $600 million on the Q3 adjusted EBITDA of the chemicals business. Shell’s Chemical business consists of a range of “petrochemical building blocks” for its industrial customers.
Shell’s natural gas business is also expected to have “significantly lower” trading results “as a result of seasonality and substantial differences between paper and physical realisation in a volatile and dislocated market.”
Is Shell Stock a Good Buy?
The overall consensus among Wall Street analysts is that Shell is a Moderate Buy based on two Buys and one Hold.
The average price forecast for SHEL stock is $68.33 implying an upside potential of 26.5% at current levels.
