Shell Has A Dire Warning For Oil Markets

By Alex Kimani'OILPRICE  – May 04, 2020, 3:00 PM CDTJoin Our Community

After months of a deep and harrowing slide, fuel demand across the world is finally starting to sputter back to life. Traffic data, pipeline flows, and sales at gas stations in the Texas City of San Antonio, Beijing, and Barcelona all suggest that the oil demand slump may have already bottomed out. But don’t rush to pop the champagne corks just yet.  Indications so far are that the road to full recovery is going to be harder than climbing out of a subterranean pit, with many oil traders predicting that it might be a year or more before demand returns to pre-crisis levels.

A growing minority are even less sanguine and speculate that it may never get back there again.

Royal Dutch Shell plc (NYSE:RDS.A) belongs to the latter camp: Company CFO Jessica Uhl warned investors of “ …major demand destruction that we don’t even know will come back,” during the company’s latest earnings call.

The Anglo-Dutch supermajor, a deepwater operator and leading natural gas trader, stunned investors after announcing the first dividend cut since the 1940s, saying it deemed it necessary to preserve liquidity given the uncertainty regarding when the pandemic will finally be contained.

Shell declared a $0.32/ADS quarterly dividend from a prior dividend of $0.94, good for a 66% cut. It also announced revenue of $60.03B (-28.3% Y/Y), $9.58B below Wall Street’s consensus; non-GAAP EPS of $0.37 beat by $0.09 while GAAP EPS of $0.00 missed by $0.18. The dividend reduction alone is set to free up around $10 billion for the bottom line. Shell’s dividend reduction will set free ~$10 billion for the bottom line.

Related: Oil Jumps On Expectations Of Slowing Inventory Builds
The dividend reset has taken many analysts by surprise, given that oil majors Chevron Corp. (NYSE:CVX) and ExxonMobil (NYSE:XOM) have both announced deep capex cuts, but left the dividend intact.

Maybe it’s just a matter of time before they also follow suit.