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Royal Dutch Shell reported a 47% increase in profits Thursday, saying it earned $4.1 billion between July and September compared with $2.8 billion in the same period last year. The dividend remained unchanged at 47 cents a share.

Shell share price was almost unchanged on the day at 2,417 pence but was higher compared with 2,312 a month ago or 2,185 three months ago.

Like other major oil companies, during the last three years when the oil priced traded close to $40 /bbl, Shell adjusted its spending to the low oil price environment and cut expenses to the bone. Staff numbers were reduced, projects were put on hold and only the most profitable continued to move ahead.

While the company did spend $50 billion to buy BG Group in 2016 it sold a number of other assets including oil fields in the North Sea and Thailand and gas fields in Ireland to cut down its debt. Its net debt dropped to $67.7 billion at the end of the third quarter from $77.9 billion a year ago.

Shell share price reflects industry trend

Shell’s results reflect very much what is happening across the sector. BP, Exxon, Chevron and Total all reported an increase in profits in the last quarter of between 40-50% as a result of continued cuts and higher oil prices. This week oil traded at $60/bbl for the first time in three years.

Cost of production is going down

Going forward, changes made in the oil industry during the last three years will ensure that the cost of production remains lower than before 2014. Shell and its competitors all invested in technologies which helped them cut costs such as extending the life of wells, using big data to analyse and prevent potential production problems, using drone technology to replace staff doing repairs in difficult to reach locations, etc.

With the US and global economy continuing to grow slowly, oil demand is also set to rise, likely to lead to higher oil prices. The Shell share price and share prices of BP and other major oil producers are expected to reflect this in the months ahead.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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