Shell’s earnings trends by segment

Let’s analyze Royal Dutch Shell’s (RDS.A) earnings performance by segment in the fourth quarter and then move on to Shell’s first-quarter earnings expectations.

Shell’s First-Quarter Earnings Prospects by Segment

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Shell’s adjusted upstream profits rose from $1.7 billion in Q4 2017 to $1.9 billion in Q4 2018, mainly led by higher oil prices. Also, Shell’s Integrated Gas earnings rose 44% over Q4 2017 to $2.4 billion in Q4 2018 due to better realizations and stable volumes. Shell’s Downstream segment’s earnings rose 53% over Q4 2017 to $2.1 billion in Q4 2018 due to stronger Refining & Trading and Marketing earnings, partially offset by weaker Chemical earnings.

Shell’s peer ExxonMobil’s (XOM) Upstream earnings increased from $2.5 billion in Q4 2017 to $3.7 billion in Q4 2018. Similarly, Chevron’s (CVX) adjusted Upstream segment earnings rose from $1.9 billion in Q4 2017 to $3.3 billion in Q4 2018.

Shell’s first-quarter outlook by segment

Shell’s upstream realizations are expected to be weaker. Though in the first quarter, oil prices have risen, their quarterly average still stands lower year-over-year in the first quarter. Brent and WTI prices, which stood at $67 per barrel and $63 per barrel, respectively, in Q1 2018, fell to $64 per barrel and $55 per barrel, respectively, in Q1 2019. Usually, everything else being equal, a decline in crude oil price suggests a likely decrease in Shell’s upstream earnings in Q1 2019, assuming no reduction in volumes year-over-year.

Also, earnings from its Downstream segment are likely to fall, as cracks have narrowed in Q1 2019 compared to Q1 2018. For instance, the US Gulf Coast WTI 3-2-1, the benchmark crack, has narrowed by 3% year-over-year to $15 per barrel in Q1 2019.

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