Shell takes $800m hit on oil price collapse
Oil giant Shell will write down up to $800m (£648.8m) in impairment charges in the first quarter of 2020 due to the global collapse in oil prices, the Anglo-Dutch firm warned today.
The combination of plummeting demand for fuel due to the coronavirus pandemic and a production war between Saudi Arabia and Russia has sent oil prices into freefall, collapsing from $70 at the beginning of the year to roughly $27 today.
As a result of lockdowns around the world, which mean that around 40 per cent of the world’s population are effectively confined to their homes, Shell has been forced to reduce its refining output by 13 per cent.
In total, global fuel consumption could drop 25 per cent in 2020, a serious challenger to Shell, the world’s largest petrol retailer.
The substantial impairment charges come as Shell has had to reduce its oil price outlook for the year.
In terms of cash flow, the oil major said, each $10 reduction in the price of benchmark Brent crude costs the group an estimated $6bn.
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Earlier this month Shell said it would reduce spending to less than £20bn and suspend its extensive $25bn share buyback scheme in a bid to preserve cash through the ongoing crisis.
The firm stressed that its liquidity remained strong, announcing a new $12bn credit facility in addition to the $10bn credit line opened in December.
Together with cash and cash equivalents of $20bn, Shell’s available liquidity will rise from $30bn to more than $40bn.
Oil prices showed signs of clawing back some gains this morning after US president Donald Trump agreed to talks with Russian equivalent Vladimir Putin to stabilise prices.
US shale prices have also collapsed due to the crisis, which has exposed the sheer volume of the supply glut the world faces.
De facto Opec leader Saudi Arabia has said it will increase exports to 10.6m barrels a day from May to counter lower domestic consumption, further flooding an already saturated market.