
Jun. 30, 2016 4:35 PM ET
Summary
- Royal Dutch Shell witnessed weakness in the downstream segment last quarter due to lower refining margins, but this is about to change going forward.
- There has been a rapid recovery in the refining marker margins, which has increased from around $9 a barrel to almost $17 a barrel within a short time.
- Shell’s downstream performance will improve as refining margins in the second quarter averaged higher than the first quarter, with more upside expected going forward.
- Driven by higher gasoline consumption and increasing utilization rates, refining margins will increase in the long run and act as a tailwind for Shell.
- Shell’s structural improvements in the downstream, such as refinery integration in Louisiana, will allow it to lower costs and tap the end-market demand in a better manner.
In a recent article on Royal Dutch Shell (RDS.A, RDS.B), I had focused on how an improvement in the upstream business will bring about a recovery in the company’s overall financial performance. The upstream business was under a lot of pressure in the first quarter, and a rally in oil prices over the past few months will ease the pressure on the same as oil price realizations improve.
But, being an integrated oil and gas company, Shell’s performance will also be driven by its downstream segment, which was also under pressure last quarter as refining margins took a tumble. So, in this article, we will see how Shell’s downstream segment has done and how it might do going forward. read more
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