The recovery in the price of oil has taken a boot off Royal Dutch Shell’s neck. The second boot of the energy transition remains firmly in place.
Europe’s largest oil major by market value on Wednesday reported strong second-quarter operating results and said it would boost shareholder returns. It will pay 20-30% of second quarter operating cash flow.
The change fulfills a promise to increase yields once net debt falls below $ 65 billion. Movements in working capital mean Shell’s net debt at the end of the quarter may have missed the mark – investors will have to wait until later this month for a specific number – but it hasn’t shaken investors : the share increased at the start of the session. The company continues to restore shareholder confidence after last year’s surprise dividend cut, Shell’s first since World War II.
One of the risks to current optimism is the inherent unpredictability of the oil market. As demand recovers and inventories decline for the time being, many uncertainties remain.
The Covid-19 variants are the wild card on the demand side. On the supply side, the Organization of the Petroleum Exporting Countries and its allies have shown remarkable discipline over the past year, but cracks are now emerging. If OPEC + fails to strike a deal, there is a risk that members will turn on the taps and push prices down.