Shell warns of worldwide crisis
ft/saturday sept 19
By Robert Corzine
Royal Dutch/Shell, the international oil group, yesterday warned of a sharp deterioration in trading conditions as the impact of the Asian economic crisis was increasingly affecting other regions and markets.
Mark Moody Stuart, group chairman, said the slowdown in the Asia-Pacific region "seems to be spreading to other parts of the world". In a speech to fund managers in San Francisco, he warned: "Overall we expect that the business environment in the second half of the year will be significantly worse than in the first half." Last month, he said the group had begun to see the effect of the Asian crisis in many unexpected ways.
Mr Moody Stuart announced the closure of Shell's national headquarters in the UK, the Netherlands, France and Germany. Shell officials said it was an assault on the powerful "country barons" in northern Europe who have long resisted radical change at the group. It was also a signal to employees that even the most entrenched traditions at Shell will be challenged in the quest to improve the group's performance.
Analysts said Shell, which operates in more than 120 countries, was one of the best industrial bellwethers to the state of the global economy. The company, which has been the most pessimistic this year in assessing oil market and macroeconomic trends, has concluded that the outlook across its main businesses was almost uniformly gloomy.
Crude oil prices for the full year were likely to average "considerably less" than $15 a barrel, against more than $19 last year, Mr Moody Stuart said. Refining and chemical margins were also being squeezed. He warned that crude oil prices "could stay depressed at levels between $12 and $16 per barrel" for two to three years.
Analysts said that would be good news for containing global inflation, but it would put more financial pressure on the main producing countries, some of which already face social and political unrest because of a collapse in their oil revenues.
Mr Moody Stuart admitted that Shell was now unlikely to meet its target set last May of achieving a 12 per cent to 12.5 per cent return on average capital.
Yesterday's statement was a marked departure from Shell's previous practice of only grudgingly providing detailed information to investors. Shell officials said they were concerned that analysts' expectations of the group's future performance were diverging sharply from the business reality it was confronting around the world. They also acknowledged a failure on their part to "manage investor expectations" and said the statement marked a new chapter in the company's transformation.
The group provided no details of job losses or changes in the organisation structure arising from the closures of the European national headquarters. |
