SHEL Expects Higher Output in Q4 Despite Lower Oil Trading Performance

Shell expects Q4 2025 upstream production of 1.84–1.94 million boe/d (up from 1.83 million boe/d in Q3 2025, aided by the Adura JV) while oil sands production will be ~20,000 boe/d following a Canadian oil sands swap. The company warned oil trading results will be “significantly lower” due to a steep drop in crude prices, marketing adjusted earnings will be pressured by seasonal weakness and a non‑cash deferred tax adjustment, and the chemicals segment expects a material adjusted‑earnings loss. The mix of slightly higher production but sizable trading, marketing and chemicals headwinds—and a strategic shift away from higher‑carbon oil sands—creates downside risk to Q4 profitability and near‑term stock performance.

Analysis

Market structure: Shell’s Q4 picture (upstream +0.01–0.11m boe/d vs Q3, oil sands -20k boe/d) reallocates margin sources away from trading/chemicals toward production. Winners: midstream (AM) and refiners (MPC) that lock volumes or benefit from lower feedstock; losers: trading desks, chemicals peers exposed to weak industrial demand and stocks of integrated majors like SHEL near-term. The slight supply increase is marginal vs global supply; the headline is volatility — signaling weaker contango/backwardation and compressed trading alpha for firms dependent on price dislocations.

Risk assessment: Tail risks include a rapid oil rally (Brent +10–15% in 30 days) that would reverse trading losses but hurt short positions, and regulatory/legal actions tied to asset swaps or Canadian policy. Immediate (days) risk: earnings-driven IV spikes and credit spread widening; short-term (weeks–months): Q4 prints and deferred-tax impacts; long-term (quarters–years): strategic asset reallocation and ESG-driven capex shifts that can re-rate reserves. Hidden dependencies: non-cash deferred tax adjustments can mask free-cash-flow (FCF) volatility and chemicals losses are tightly correlated to global PMI and LNG/ethane feedstock swings.

Trade implications: Favor tactical rotation into refiners and fee-based midstream: establish measured long exposure to MPC and AM while hedging integrated majors’ trading/marketing exposure. Option structures to use: buy 3-month put spreads on SHEL to limit cost and buy call spreads on MPC to capture margin tailwinds if product cracks widen. Time actions into next 2–8 weeks ahead of Q4 report; exit or re-weight on a Shell trading beat or Brent >+10% from current levels.

Contrarian angles: The market may over-penalize Shell for transient trading/chemicals hits while upstream EBITDA and dividend capacity remain resilient — opportunity if sell-off exceeds 8–12% post-announcement. Historical parallels: 2015–2017 majors saw temporary trading losses followed by recovery once OPEX/capex discipline and upstream production stabilized. Unintended consequence: crowded longs in refiners could invert if global demand falters; set explicit Brent and PMI thresholds to de-risk positions.

Key Decisions for Investors

• Establish a 2.5% portfolio long in Marathon Petroleum (MPC) within 1–2 weeks to capture likely feedstock tailwinds and refining margin upside; set a 12% upside target over 6–12 months and a hard stop-loss at -8% or if U.S. 3:2:1 crack spread falls >20% in 30 days.
• Implement a 1.5% notional protective bearish position on Shell (SHEL) via a 3-month put spread: buy 10% OTM put and sell 25% OTM put (debit-limited) sized to 1.5% portfolio risk; close if Shell reports trading beat or Brent rises >10% from current levels.
• Initiate a pair trade: long Antero Midstream (AM) 2.0% vs short SHEL 2.0% to play stable midstream volumes against integrated trading/marketing weakness; reassess after Q4 results or if AM EBITDA margin falls >15% QoQ, exit within 3–6 months if trigger met.
• Add a 1.5–2.0% long position in Oceaneering (OII) for 9–12 months as a cyclical recovery play in offshore services; take profits if offshore rig dayrates recover and OII EPS revisions turn positive (consensus upgrade), cut if backlog declines >10% QoQ.