Forecasted Decline in Supermajor Earnings: BP and Shell Confront Oil Price and Demand Challenges

BP and Shell are anticipated to report lower profits due to weak oil prices and reduced global demand, with BP expecting a 30% year-on-year drop and Shell a 14% decrease. Both firms face challenges from declining refining margins and market concerns over their strategic direction. BP's shares have fallen 14% this year, while Shell's stock is up 1% despite potential moves to a New York listing. Amid economic slowdowns and increasing electric car sales, oil companies face downward demand forecasts from Opec.

The energy sector is bracing for lower profits from BP and Shell as both companies anticipate a significant drop in earnings due to weak oil prices and reduced global demand [1]. According to a report by Business Insider, BP is expecting a 30% year-on-year decline in profits, while Shell is projecting a 14% decrease [1].

The slide in profitability is attributed to a combination of factors, including declining refining margins and economic slowdowns. Brent crude prices have been hovering around 10% below their 2024 starting levels, indicating a persistent weakness in the oil market [1]. Moreover, the demand for oil has been adversely affected by growing electric car sales and a general downturn in consumer and industrial sectors [1].

Opec, the cartel of major global oil producing nations, has also lowered its outlook for worldwide oil demand growth this year and next [1]. This downward revision adds to the challenges facing BP and Shell, as they struggle to maintain their profitability amidst a rapidly changing market landscape.

Despite the bleak prospects, both companies have been pursuing various strategies to boost investor confidence. BP's CEO, Murray Auchincloss, has been focusing on scaling back the firm's renewable energy plans and focusing on oil and gas to regain investor confidence [1]. Meanwhile, Shell has been implementing a share buyback program and exploring the possibility of a New York listing [1].

However, concerns over the strategic direction of these companies have persisted. BP's decision to cut oil and gas output while boosting its green business was initially met with enthusiasm but was later scaled back due to the departure of its former CEO [1]. Meanwhile, Shell's potential move to abandon its London listing has raised questions about the company's commitment to its UK shareholders [1].

In summary, the lower profits anticipated from BP and Shell are a reflection of the broader challenges facing the energy sector, including weak oil prices, reduced demand, and the shift towards renewable energy sources. As the market continues to evolve, these companies will need to adapt their strategies to remain competitive and maintain investor confidence.

References:
[1] Business Insider. (2024, October 28). News BP and Shell to reveal lower profits amid decline in oil refining margins. https://www.insider.co.uk/news/bp-shell-reveal-lower-profits-33983127