Shell blames oil, gas margin calls for billions in cash outflows

Shell blames oil, gas margin calls for billions in cash outflows

LONDON- Shell said on Thursday it diverted $7 billion of its cash flows partly to cover hefty oil and gas margin calls, becoming the first company to publicly acknowledge the pressure commodities traders have faced in 2022 from extreme price rises and volatility.

Shell, together with other majors, utility companies, trading houses and banks, signed a letter in March urging governments and financial institutions such as central banks to set up an emergency liquidity mechanism to help energy markets cope with the extreme volatility caused by Russia's invasion of Ukraine.

"Price increases impacting inventory have led to a cash outflow of around $7 billion. Reflecting the unprecedented volatility in commodity prices ... material additional movements could be seen in (operating cashflow) from margining effects on derivatives, changes in inventory volumes and in accounts payable and receivable," the company said in an update ahead of its May 5 earnings release.

In a research note, Royal Bank of Canada assumed about $3 billion of the figure cited by Shell was due to margining impacts while it estimated the oil company's net income in the first quarter to be $8.7 billion to $9.1 billion and overall cash flow to be between $16 billion and $17 billion.

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