Shell's refiners booked about $42 a barrel in the third quarter on an indicative basis, a figure that sits nearly $14 above the earlier high of $28.04, reached in the spring of 2022. Announcing results on Thursday, the company put adjusted earnings for the July-to-September period at $10.81 billion, close to twice the $5.43 billion it reported for the same months last year.
The LSEG consensus of analysts had pointed to $9.92 billion, which makes this a clear outperformance rather than a routine pass. The result was Shell's best since mid-2022, when the invasion of Ukraine unsettled energy markets. In London, the stock gained roughly 3% during the morning and touched a record.
Why Shell's refining margins hit a record
Investors had little to learn about the margin itself, since Shell warned of it earlier in the month. What is pushing it higher is tightness in refined products rather than in crude. Fighting involving the United States, Israel and Iran has choked exports from the Gulf, and assaults on shipping near the Strait of Hormuz have made matters worse. Brent was changing hands near $114 a barrel on Thursday, compared with about $65 twelve months ago. Ukrainian strikes on Russian refineries have taken further capacity out of a market that had little to spare, so gasoline, diesel and jet fuel have climbed faster than the cost of the crude feeding the plants would account for.
The difference between the price of the raw material and the price of what comes out of the refinery is how these businesses make their money, and at the moment it is unusually large.
Shell is not an outlier. TotalEnergies said its adjusted net income more than doubled across the same quarter, to around $9.1 billion. Its chief executive, Patrick Pouyanne, pointed to historically strong refining margins in Europe and elsewhere, and described oil trading as steady. When two of the continent's largest producers post similar results on the same morning, the likelier explanation is a market-wide windfall rather than superior management at either firm. If the spread holds, the final quarter of the year should look much like this one.
Cash, debt and what comes next
The earnings translated into cash. Free cash flow reached $16.3 billion against $10 billion a year before, while net debt dropped to $39.7 billion from $41.75 billion at the end of the prior quarter. For the coming three months Shell set its repurchase programme at $5 billion, up from $3 billion and ahead of what investors had anticipated. It also narrowed its 2026 capital spending guidance to $23 billion to $25 billion, lowering the earlier band of $24 billion to $26 billion.
That deleveraging carries more weight in light of the money Shell laid out in the period. It closed a $16.4 billion acquisition of Canada's ARC to raise production, an angle Maurizio Carulli, an equity research analyst at Quilter Cheviot, discussed with CNBC. He described results as impressive in all divisions, and expects further small additions to the portfolio but not a wholesale overhaul. Shell recently sold its Indian wind and solar businesses and is reported to be weighing a sale of its UK chemicals venture with Exxon, a pattern consistent with trimming at the margins while staying committed to hydrocarbons.
Wael Sawan, the chief executive, framed the solid operating performance against what he called continuing and serious disruption to global energy supply. It is a frank description, given that the disruption is what generated the profit.
Politics follows naturally. Earlier this month the Group of Seven agreed to draw on emergency diesel reserves as households feel the pain at the pump, and record refining earnings set beside those prices will draw attention in national capitals. The windfall-tax debate that shaped European policy after 2022 now has an audience again. Governments are constrained, however, because the buybacks and investment programmes of these firms also help sustain the flow of new supply.
The largest unknown lies in the Middle East. Washington and Tehran are said to be considering a resumption of military strikes, and Saudi Arabia has suffered deadly Houthi attacks. A ceasefire that restored Gulf shipments would squeeze margins fast, whereas escalation would widen them, with motorists footing the bill. In either case, $42 is hard to count on for the next quarter.