Shell plc SHEL has released its second-quarter 2026 update ahead of its earnings announcement on July 30, providing investors with a clearer picture of how the company navigated a volatile operating environment. While geopolitical tensions in the Middle East continue to weigh on production, Shell expects stronger gas trading, higher refining margins and improved working capital to support quarterly performance.
The update reflects a business that is balancing operational disruptions with favorable market conditions across key downstream businesses.
Integrated Gas Faces Production Hit but Trading Remains a Bright Spot
Shell expects production from its Integrated Gas business to come in between 610,000 and 650,000 barrels of oil equivalent per day (boe/d), well below the 909,000 boe/d recorded in the first quarter. The decline primarily reflects the impact of the ongoing Middle East conflict on Qatari production.
Despite the lower output, the company raised its earlier guidance for both gas production and LNG liquefaction volumes. LNG liquefaction is now expected to reach 7.4-7.8 million metric tons, an improvement over its previous forecast.
More importantly, Shell expects Trading & Optimization earnings within the Integrated Gas segment to be significantly higher than in the previous quarter. Strong gas trading is likely to help cushion the earnings impact from reduced production volumes, highlighting the value of Shell's integrated business model.
Upstream Business Remains Resilient
Unlike the Integrated Gas segment, Shell's Upstream operations remain relatively stable.
The company expects production between 1.75 million and 1.85 million boe/d during the second quarter, broadly in line with first-quarter production of 1.843 million boe/d.
Although taxation charges are expected to increase compared with the previous quarter, steady production suggests that Shell's conventional oil and gas portfolio continues to provide dependable cash generation despite geopolitical uncertainty.
Refining and Chemicals’ Margins Improve Sharply
One of the strongest positives from the update is the improvement in downstream market conditions.
Shell now expects its indicative refining margin to average roughly $20 per barrel, up from $17 per barrel in the first quarter. At the same time, indicative chemicals’ margins are projected to jump to around $240 per ton, compared with $139 per ton previously.
Refinery utilization is expected to approach full capacity at approximately 100%, reflecting strong operational execution.
However, management cautioned that realized refining and chemicals’ margins remain below these indicative levels because of market dislocations. Even so, the overall margin environment appears considerably stronger than in the previous quarter and should support downstream earnings.
Marketing and Renewables Deliver Stable Outlook
Shell expects Marketing adjusted earnings to remain broadly in line with first-quarter performance, indicating continued resilience in its fuel retail and marketing operations.
Meanwhile, the Renewables and Energy Solutions business is expected to report adjusted earnings ranging between a loss of $300 million and a profit of $300 million. Although the segment continues to experience earnings volatility, it remains a relatively small contributor to overall group profitability.
Working Capital Rebound Strengthens Cash Flow
Another encouraging takeaway from the update is Shell's outlook for working capital.
The company expects a working capital inflow of $1 billion to $6 billion during the second quarter, reversing the substantial $11.2 billion outflow recorded in the first quarter amid extreme commodity price volatility.
This improvement should provide a meaningful boost to operating cash flow and strengthen short-term liquidity.
Middle East Risks Continue to Shape Operations
Despite the stronger outlook in several businesses, geopolitical risks remain an important consideration.
Production at Shell's Pearl gas-to-liquids facility in Qatar was disrupted after an attack on Ras Laffan Industrial City damaged one of the plant's processing trains. Repairs are expected to take approximately one year.
Given that roughly 20% of Shell's oil and gas production comes from the Middle East — and about half of that is linked to Qatar — the region remains a key operational risk for the company.
Way Ahead for SHEL
Shell's second-quarter update paints a balanced picture. Lower gas production caused by Middle East disruptions remains a near-term headwind, but stronger gas trading, improved refining and chemicals margins, resilient upstream production and a sharp recovery in working capital provide meaningful offsets.
While geopolitical uncertainty continues to cloud the outlook, Shell's diversified portfolio and integrated operating model appear well positioned to navigate market volatility. Investors will now look to the company's full second-quarter earnings report on July 30 for confirmation that these favorable trends translated into stronger financial performance.
SHEL’s Zacks Rank & Key Picks
London-based Shell is one of the primary oil supermajors — a group of U.S. and Europe-based big energy multinationals with operations that span almost every corner of the globe. Currently, SHEL has a Zacks Rank #3 (Hold).
Investors interested in the energy sector may consider some top-ranked stocks like Global Partners LP GLP, ARKO Petroleum Corp. APC and Imperial Oil Limited IMO, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Global Partners is a Delaware limited partnership formed by affiliates of the Slifka family. It owns, controls or has access to one of the largest terminal networks of refined petroleum products in New England. The Zacks Consensus Estimate for GLP’s 2026 earnings indicates 113.1% year-over-year growth.
ARKO Petroleum is a fuel distributor in North America that operates through segments like Wholesale and Fleet Fueling. The Zacks Consensus Estimate for APC’s 2026 revenues indicates 41.5% year-over-year growth.
Calgary-based Imperial Oil is one of the largest integrated oil companies of Canada, mainly engaged in oil and gas production, petroleum products refining and marketing and chemical business. The Zacks Consensus Estimate for IMO’s 2026 earnings indicates 69.2% year-over-year growth.
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