Shell expects oil price to remain firm: Volatility damages group's profits

JOHN JENNINGS, chairman of Royal Dutch/Shell Group, forecast yesterday that oil prices would remain above current levels for the rest of this year.

He said the oil price was underpinned by resurgent demand in Western economies and disruption to supplies because of the strike among oilfield workers in Nigeria.

The volatility in the price hurt Shell's second-quarter profits, which fell 7 per cent to pounds 574m on a replacement- cost basis.

Profits from exploration and production suffered as the average oil price during the quarter to the end of June was 12 per cent below the average for the previous comparable period. In the past 12 months the price of Brent crude fell from dollars 17 a barrel to dollars 13, then rose again to dollars 18.

The price recovery so far this year has also damaged Shell's profit margins on refining because of the lag in passing on higher crude costs.

The shares fell 10p to 720p on the results. John Toalster, analyst with the securities house SG Strauss Turnbull, said: 'The results were well below the bottom of the range of expectations. The upstream is a lot worse than expected.'

Profit margins on refined products in the Far East were hurt by a ban on the import of refined fuels into China.

Second-quarter earnings from refining and selling fuel in the US increased by 18 per cent to pounds 64m. Outside the US, earnings fell 14 per cent to pounds 391m. Exploration and production profit declined in the US and the rest of the world, with profits falling 43 per cent to pounds 233m.

The group will declare an interim dividend on 15 September.