SHEL Expects Higher Output in Q4 Despite Lower Oil Trading Performance

Shell plc (SHEL), the global energy giant, has projected an increase in oil and gas production during the fourth quarter of 2025, even as it flagged a significant downturn in the oil trading performance. This mixed forecast follows a turbulent period for the company, with fluctuating crude oil prices and shifting market dynamics impacting key aspects of its business operations.

Q4 Upstream Production to Rise to 1.94 Million Boe/d

London-based Integrated Oil and Gas company has confirmed that its fourth-quarter upstream production, which relates to the extraction of crude oil and natural gas, is expected to be between 1.84 million and 1.94 million barrels of oil equivalent per day (boe/d). This represents a slight increase compared with the 1.83 million boe/d produced in third-quarter 2025 due to the incorporation of Adura JV. The company’s ability to maintain or slightly boost production amid global volatility highlights its operational resilience and strategic approach to resource extraction.

The increase in oil and gas production is part of Shell's broader strategy to strengthen its position in the energy market. This boost is likely attributed to a combination of new projects coming online, improved output from existing fields and ongoing investments in cutting-edge drilling technologies. Despite the anticipated rise in production, challenges related to pricing and market demand fluctuations continue to impact the profitability of the company's operations.

Oil Trading Performance Declines Significantly

In contrast to the positive outlook for production, Shell has warned of a significant decline in its oil trading performance for the fourth quarter. The company stated that oil trading results would be "significantly lower" compared with the previous quarter, primarily due to the steep drop in crude oil prices. The global oil market has experienced heightened volatility in recent months, with crude prices fluctuating in response to geopolitical tensions and shifting demand dynamics.

Shell’s trading division has historically been a significant contributor to its earnings, but the sharp fall in crude prices during the fourth quarter has undoubtedly exerted pressure on margins. This change in market conditions underlines the challenges facing companies in the oil and gas sector, where price volatility remains a persistent risk factor.

Seasonal and Tax-Related Pressures on Marketing Earnings

Shell’s marketing division also faces headwinds in the fourth quarter, with adjusted earnings expected to be under pressure. Seasonal factors are likely contributing to weaker performance, as colder temperatures in the Northern Hemisphere often lead to lower demand for certain energy products, including refined fuels and natural gas. In addition to these seasonal impacts, Shell has also indicated that a non-cash deferred tax adjustment will further exacerbate the pressure on marketing earnings.

Deferred tax adjustments, while non-cash in nature, can still significantly affect a company’s financial outlook. In Shell's case, these adjustments are likely tied to its ongoing efforts to optimize the tax strategy amid the complexities of global taxation laws. This development is something investors and analysts will be watching closely, as it may have longer-term implications for Shell’s profitability.

Chemical Sub-Segment Faces Steep Losses in Q4

The company also disclosed that its chemicals sub-segment would see a considerable loss in adjusted earnings for the fourth quarter. The chemicals and products division, which has been a significant area of focus for Shell in recent years, has encountered a variety of challenges, from volatile raw material costs to shifting market demands.

Shell's chemical division, which produces a wide range of products including plastics, detergents and specialty chemicals, is expected to experience losses below break-even in the fourth quarter. This reflects broader market conditions, such as lower industrial demand, increased competition and cost pressures related to feedstock and energy prices. These factors are compounded by the ongoing global economic slowdown, which has dampened demand across various industrial sectors.

Impact of Canadian Oil Sands Swap on Q4 Production

Another notable development in Shell’s fourth-quarter performance is the completion of the Canadian oil sands swap. This strategic transaction, which involved a shift in assets between Shell and other industry players, will result in a reduction in oil sands production for fourth-quarter 2025. Specifically, Shell has indicated that its oil sands production in the fourth quarter will be approximately 20,000 barrels of oil equivalent per day.

While this may appear as a small fraction of Shell’s overall production, the shift in assets is part of a broader strategic effort to align its portfolio with long-term sustainability goals. Shell has been gradually transitioning away from higher-carbon oil sands projects, focusing instead on lower-carbon energy solutions, including renewables and cleaner technologies. As such, the Canadian oil sands swap represents a critical piece of Shell’s ongoing transformation as it moves toward a more sustainable energy future.

Conclusion: Navigating Challenges While Securing Production Gains

Shell’s outlook for fourth-quarter 2025 reflects a mixed performance, with higher upstream production offset by significant challenges in its oil trading and chemicals divisions. While the company anticipates a slight increase in production, the pressures from falling oil prices and seasonal factors in its marketing segment highlight the volatility of the energy market. Despite these hurdles, Shell’s continued focus on strategic investments and commitment to transforming the energy portfolio ensure that it remains well-positioned to adapt to the evolving market landscape.

SHEL's Zacks Rank & Key Picks

Currently, SHEL has a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like Marathon Petroleum MPC, Antero Midstream AM, each sporting a Zacks Rank #1 (Strong Buy), and Oceaneering International OII, carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Marathon Petroleum is valued at $51.86 billion. MPC is a leading American petroleum refining, marketing and transportation company, specializing in the production of gasoline, diesel and other refined products. Marathon Petroleum operates a vast network of refineries and retail locations, serving customers across the United States and internationally.

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