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Oil price crash to cost Shell up to $22bn

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Royal Dutch Shell gas station in Brussels, Belgium. Photo: Jonathan Raa/NurPhoto via Getty Images

Collapsing oil prices and dim prospects of a rebound have led Shell (RDSB.L) to write-off billions of dollars on the value of its assets.

Shell said on Tuesday that it would make impairments on its assets of between $15bn (£12bn) and $22bn. It comes after the oil giant reassessed its long-term oil price forecasts to reflect “the expected effects of the COVID-19 pandemic and related macroeconomic, as well as energy market, demand and supply fundamentals.”

Shell now expects Brent crude to average $35 per barrel this year and only return to around $60 per barrel — where it started the year — by 2023.

Oil prices have collapsed over the last six months. The COVID-19 pandemic severely dented global fuel demand as flights were grounded and stay-at-home orders led to collapses in motoring and public transport usage. The Saudis and Russians also started a price war in March that flooded the market with supply and further depressed prices.

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Market conditions were so stressed in April that US crude oil futures turned negative for the first time in history. Brent (BZ=F), the international oil benchmark, was trading near an 18-year low at the same time.

Brent futures have sold off sharply over the last six months. Photo: Yahoo Finance UK

“Given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient,” Shell said in a statement.

Shell joins rival BP (BP.L) in writing down the value of its assets. BP earlier this month said it would write-off $17.5bn as a result of the oil price slump. The company is far more pessimistic than Shell and expects oil prices to only reach $55 a barrel by 2050.

Shell said Tuesday it expects to produce more oil this year than previously expected — between 2.3m and 2.4m barrels a day — but said this would have “a limited impact on earnings in the current macro environment”.

Shares in Shell slipped 0.2% in London on Tuesday morning.