Why did Shell cut its dividend for the first time since WWII?

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Shell Cut Dividend for the First Time Since World War Two Due to Unprecedented Drop in Oil Demand

Royal Dutch Shell reduced its dividend for the first time since World War Two on April 30, 2020, as a direct consequence of the severe and unprecedented decline in global oil demand caused by the coronavirus pandemic. This significant decision was made amidst a backdrop of substantial financial impact, including a near halving of net profit in the first quarter of 2020, and was accompanied by other cost-saving measures.
Impact of the Coronavirus Pandemic on Demand and Profitability

The coronavirus pandemic triggered an unprecedented drop in oil demand, leading to a 46% decrease in Shell's net profit for the first three months of 2020, which fell to US$2.9 billion. This demand shock also prompted the company to cut activity at its refining business by as much as 40%. The International Energy Agency (IEA) projected a potential slump of 6% in global energy demand for 2020, marking the largest contraction on record.
Prudent Financial Management Amidst Uncertainty

Shell Chairman Chad Holliday explained that maintaining the current level of shareholder distributions was deemed imprudent due to a confluence of factors. These included the risk of a prolonged period of economic uncertainty, weaker commodity prices, heightened volatility, and an uncertain demand outlook. This assessment led to the decision to reduce the quarterly dividend to US 16 cents per share from the previous 47 cents.
Broader Strategic and Financial Adjustments

Beyond the dividend cut, Shell also suspended the next tranche of its share buyback programme and announced a reduction in oil and gas output by nearly a quarter. The company further adjusted its financial strategy by reducing capital expenditure for the year to a maximum of US$20 billion and aiming to cut operating costs by US$3 billion to US$4 billion. This dividend reduction, a 66% cut, is viewed by analysts as a necessary step to reinforce Shell's capital framework and position it for the ongoing energy transition.

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Why did Shell cut its dividend for the first time since WWII?

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