Shell dips as chemicals comeback slows down

Shares in Shell slipped yesterday as the company gave the first confirmation that results in key businesses including chemicals may have peaked after a rapid recovery in the last year.

Reporting second-quarter profits 90 per cent higher than a year ago at pounds 1.28bn, Shell, a bellwether for the international economy, warned that chemicals demand moderated in the second quarter. It expected demand to be somewhat weaker in the second half.

It also said oil prices peaked in April and fell sharply by the end of the second quarter. In the third quarter, the price is expected to fluctuate at the $16-a-barrel level, at which Brent oil is now trading, it said.

Refinery margins recovered in North America and Western Europe, but Shell said the underlying trend was weak in Eastern and Western markets.

The Royal Dutch/Shell group benefited from big increases in crude oil prices and higher sales - up 3 per cent for crude oil and 2 per cent for gas - as well as a dramatic improvement in the chemicals industry in its most recent quarter's results.

Chemicals made pounds 313m in the second quarter compared with a loss of pounds 41m a year ago, though the latest results are boosted by the first consolidation of Montell, the polyolefins business.

There was also a pounds 155m turnaround in the impact of foreign exchange fluctuations from a loss to a pounds 77m profit, though interest costs shot up from pounds 58m to pounds 121m.

Shares in Shell Transport and Trading, the UK quoted arm of the group, fell 15p to 759p. The dividend is to be announced on 14 September.

Meanwhile, the US subsidiary Shell Oil was bracing for the impact of Hurricane Erin, and said the volume of crude oil flowing through its Capline pipeline had been cut by half to 600,000 barrels per day due to the disruption. Capline moves crude oil from the US Gulf to the Midwest, but has been affected by the shutdown of the Louisiana Offshore Oil Port ahead of the hurricane, which is heading for oil and natural gas fields off Louisiana.

Shell Oil announced a large discovery at the Ursa prospect in the Gulf of Mexico about 135 miles south-east of New Orleans. Shell is operator of the six-block unit and holds a 45 per cent interest. Partners include BP. A group is being set up to study development options.

Investment Column, page 20

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