Shell Navigates Divergent Q4 Outlook: Production Gains Overshadowed by Trading Headwinds

Shell plc (SHEL), the London-based energy multinational, finds itself navigating a paradoxical fourth quarter, with upstream production poised to climb even as oil trading dynamics shift considerably lower. The company’s mixed guidance underscores the volatile operating environment facing major integrated energy players, where production momentum can be offset by commodity price pressure and demand uncertainty.

Production Momentum: Upstream Output Set to Edge Higher

The integrated energy firm has indicated that fourth-quarter upstream production will land within a range of 1.84 to 1.94 million barrels of oil equivalent per day (boe/d), marking a modest uptick from the 1.83 million boe/d achieved in the preceding three months. This incremental gain reflects the integration of new assets through the Adura joint venture, alongside optimization efforts across existing production infrastructure.

Shell’s ability to push production figures higher during this period demonstrates operational discipline amid macroeconomic uncertainty. The production lift stems from a combination of new projects reaching plateau production, enhanced recovery from mature assets, and capital deployment in advanced extraction methodologies. While the absolute increase appears modest in percentage terms, it signals management confidence in maintaining output discipline even as market conditions remain fluid.

However, this production-side strength arrives as the company confronts significant headwinds in both its downstream and trading operations, creating a complex earnings picture for the quarter ahead.

Oil Trading Under Pressure: Results Expected to Fall Considerably

The energy giant has cautioned investors that oil trading performance will deteriorate substantially in the fourth quarter relative to third-quarter results. This downward revision stems directly from the steep decline in crude oil valuations witnessed in recent months, which has compressed trading margins and reduced arbitrage opportunities for the company’s trading desk.

The global crude market has experienced pronounced swings lately, with price movements reflecting geopolitical risk premiums, unexpected demand shifts, and broader macroeconomic headwinds. For integrated majors like Shell, which maintain large downstream trading and risk management operations, such volatility can swing quarterly results in either direction. The anticipated compression in trading earnings highlights how commodity price environments directly impact profitability beyond mere production volumes.

Historically, Shell’s trading operations have served as an earnings stabilizer, adding value during periods of market dislocations. The current quarter represents an inflection point where that dynamic reverses, weighing on overall financial performance.

Marketing Division Faces Seasonal and Tax Headwinds

Beyond the trading dynamic, Shell’s downstream marketing segment is contending with multiple pressures entering the final quarter. Seasonal patterns typical for Northern Hemisphere winter are expected to dampen refined product margins, as milder demand for heating fuels and gasoline translates into tighter spreads.

Compounding this seasonal pressure, the company has flagged a non-cash deferred tax adjustment that will further burden marketing earnings. While these adjustments carry no immediate cash impact, they reflect the company’s complex international tax posture and ongoing optimization efforts across its global footprint. This technical adjustment, though non-cash in nature, signals management’s expectation of lower accounting profitability in this segment regardless of operational performance.

Chemical Operations: Confronting Significant Earnings Headwinds

Shell’s chemicals and products division faces particularly acute challenges heading into Q4, with the company projecting adjusted losses for the segment. This strategic business unit, spanning plastics, surfactants, and specialty chemicals manufacturing, is being pressured by a confluence of unfavorable market factors.

Raw material cost volatility continues to constrain margins in petrochemical production, while downstream demand from industrial customers has moderated in response to broader economic slowdowns. The combination of input cost pressure and reduced customer demand creates a difficult pricing environment where producers struggle to pass through cost increases. These conditions are likely to persist through the quarter, keeping chemical earnings dynamics challenged.

Strategic Asset Repositioning: Canadian Oil Sands Reduction

A structural shift in Shell’s portfolio stems from the completion of its Canadian oil sands asset swap, resulting in production in that region dropping to approximately 20,000 boe/d in the fourth quarter. While this figure represents a modest absolute contribution to the company’s total production slate, the transaction reflects Shell’s strategic pivot toward lower-carbon energy investments.

This deliberate reduction in higher-carbon production capacity aligns with the company’s declared intention to gradually transition its portfolio toward renewable energy and cleaner power solutions. The oil sands reduction serves as a concrete expression of capital reallocation priorities as Shell reshapes its business mix to address longer-term energy transition imperatives.

Synthesis: Balancing Production Resilience Against Cyclical Pressures

Shell’s fourth-quarter preview presents a study in contrasts: the company is achieving incremental production growth while simultaneously absorbing headwinds across trading, chemicals, and seasonal marketing dynamics. This divergence illustrates the multifaceted challenges confronting large integrated energy firms in 2025, where operational success in upstream extraction must be weighed against downstream profitability pressures and commodity market volatility.

The production gains, while welcome, cannot fully offset the anticipated earnings compression in trading and chemicals. Investors evaluating SHEL will need to reconcile the company’s underlying production momentum with near-term earnings visibility challenges stemming from market factors largely beyond management’s control. The oil trading results in particular will serve as a barometer for how severely commodity volatility impacts quarterly results, with the potential for either upside or downside surprise depending on actual market conditions through year-end.