ii view: chemicals a blot on Shell's Q4 performance

Fourth-quarter trading update to 31 December

ii round-up:

Shell (LSE:SHEL) today flagged a tough fourth quarter for its Chemicals and Products division, with the oil and gas major also narrowing expected liquefied natural gas (LNG) production for the period.

Trading performance for the Chemicals and Products business had proved significantly below that of the prior quarter, with the division expected to generate a quarterly loss. Anticipated LNG sale volumes of 7.5-7.9 million tonnes was narrowed from a prior forecast of 7.4-8.0 million tonnes.

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news up 11% in 2025. That’s similar to rival BP (LSE:BP.) over the year but behind a 21.5% gain for the FTSE 100 index itself. The price of oil fell by almost a fifth, its biggest fall since 2020. Natural gas was little changed.

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Shell’s various divisions include integrated gas, oil, chemicals, and renewable energy production. Its trading business buys and sells across these areas for both its own and others production.

Expected Q4 LNG production of between 930 and 970 thousand barrels of oil equivalent per day (kboe/d) compares with 934 kboe/d in Q3.

Utilisation of the group’s chemical facilities of as little as 75% is less than the 80% reported in Q3. New supply coming predominately from Asia remains an overhang for the division.

Fourth-quarter results are scheduled for 5 February.

ii view:

Employing over 95,000 people across more than 70 countries, Shell serves approximately one million commercial and industrial customers as well as around 33 million people daily at its refuelling outlets. A readjusted strategy in 2023 sees management focused on performance, discipline and simplification. Competitors include TotalEnergies SE (EURONEXT:TTE), Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX).

For investors, concerns about energy and chemical oversupply, sharpened by everchanging geopolitics, continue to come and go. US trade tariffs, reducing demand for products such as cars and requiring significant energy to produce, warrants thought. A reduced priority on renewables could come back to hurt Shell in the future, while a forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap.

• The FTSE 100 dividends worth billions due in January 2026
• 20 highest-yielding FTSE 100 shares in 2025
• The shares attracting fund managers at start of 2026

More favourably, a diversity of operations regularly allows one area of strength to counter another of weakness. Prior strategy changes, including exploring only regions where hydrocarbons have already been found, are helping contain capital expenditure and thereby assisting shareholder returns. Cost savings of $3.9 billion by mid-2025 represent a sizeable chuck of management’s targeted $5-7 billion by 2028, while Shell’s previous estimate that the dividend could be sustained even with the oil price as low as $40 per barrel - currently around $60 - offers reassurance.

On balance, and despite continuing risks, a consensus analyst estimate of fair value above £31 per share and a forecast dividend yield of around 4% offer reasons for ongoing optimism.

Positives:

• Diversity of operations
• Focus on shareholder returns

Negatives:

• Uncertain economic outlook
• The weather can raise operational challenges

The average rating of stock market analysts:

Buy