Shell expects record refining margins as Iran war boosts fuel markets

Oct 7 (Reuters) - Shell expects third-quarter refining margins to jump to $42 a barrel, a record high and sharply above $24 a barrel in the previous quarter, the oil major said on Wednesday, as the Middle East conflict tightened fuel supplies, driving up prices.

Global benchmark Brent crude prices surged after the US and Israel attacked Iran in late February, prompting Tehran to effectively shut the Strait of Hormuz and attack Gulf neighbours.

Those disruptions have pushed up fuel prices, prompting the G7 countries last week to agree to release diesel and crude oil stocks from emergency reserves.

As higher energy prices boost their revenues, major oil companies are, meanwhile, expected to reap a multibillion-dollar windfall from the conflict.

Results from Shell's large gas and oil products trading businesses are expected to be in line with the previous quarter, when they helped the company deliver its second-highest quarterly profit on record.

Shell raised its third-quarter integrated gas production forecast to between 740,000 and 780,000 barrels of oil equivalent per day, from a previous estimate of 570,000 to 630,000 boed.

The company produced 631,000 boed in the second quarter, compared with more than 900,000 boed before the Iran war.

Third-quarter liquefied natural gas production is expected to be around 7.2 million to 7.6 million metric tons, compared with a previous forecast of 7.1 million to 7.7 million tons and second-quarter output of 7.7 million tons.

The integrated gas outlook includes Shell's $16.4 billion acquisition of Canadian energy company ARC Resources, which was completed on September 2, the company said.

Shell also narrowed its third-quarter upstream production forecast to between 1.74 million and 1.84 million boed, from a previous expectation of 1.68 million to 1.88 million boed.

"Higher production in the upstream with a one-month contribution from the ARX deal lifts production guidance above consensus, while trading results being in line with elevated (second-quarter 2026) levels should support cash flow generation," RBC analysts said in a note.

"Overall, underlying cash flow looks strong relative to market expectations."

Refinery utilisation at Shell's chemicals and products unit, which includes its large oil trading business, is expected to be lower in the third quarter than in the second quarter because low Rhine River water levels are affecting utilisation at its Rheinland refinery.

Shares in Shell rose 0.3% by 0743 GMT, versus a broader index of European energy companies trading down 0.1%.

(Reporting by Yadarisa Shabong in Bengaluru and Shadia Nasralla and Stephanie Kelly in London. Editing by Nivedita Bhattacharjee, Mark Potter and Joe Bavier)