Tough times for oil giants as crude prices stay subdued
OIL giants BP and Royal Dutch Shell weighed heavily on the FTSE 100 yesterday as a wave of bearish sentiment about the medium-term oil price hit the equity markets.
Forecasts released by Goldman Sachs and Jefferies predicting a tough outlook for the value of crude were followed by a batch of broker downgrades, with Merrill Lynch and Kepler Cheuvreux cutting BP to lower ratings and LLBW changing Shell from buy to hold. BP fell 7.1p, or 1.6pc, to 442.80p and Shell “B” shares, the more commonly held type in the UK, closed 32p down to £20.62p. Jefferies said that its price forecast “which seemed very reasonable a month ago, now appears heroic”, while Goldman has slashed its three-month average price forecast from $55.00 per barrel for WTI crude, the American benchmark, to $47.50. Chris Beauchamp, IG’S chief market analyst, said that it was “a shame to see BP and Shell knock around eight points off the index”, especially given the “robustness” in the oil price this week. Brent crude finished the week 6pc up, peaking around the $48.50 per barrel mark just a week after the price dropped below $45.
Mr Beauchamp added that the price was unlikely to exceed $50 per barrel as “US producers keep chucking out oil like there’s no tomorrow and while Libya and Nigeria take full advantage of their exemption from OPEC cuts”. Nitesh Shah, commodities strategist at ETF Securities, said: “With a lot of the oil companies their valuation is highly dependent on medium-term oil prices and that’s one of the big feedthroughs into their valuations. It’s going to be very difficult for oil prices to trade above $47 per barrel in this environment.”
The heavy weighting of the two oil giants on the
FTSE 100 pulled down the index, which finished 38 points lower at 7,312.
Of the mid-cap energy shares, Nostrum Oil & Gas dropped 9.80p to 484.20p and Tullow Oil fell 3.10p to 150.70p. FTSE 250 pub giant
Greene King tumbled by as much as 6.75pc in intraday trade before paring losses during the afternoon and closing 15p down at 673.50p.
Investors are still digesting the company’s trading update on Thursday, which warned that challenging conditions will intensify for the 218-yearold company. Mark Irvinefortescue, a Panmure Gordon analyst, said that the company is “running hard to stand still” and its portfolio of “value tilted” assets is “arguably more sensitive to the tough consumer backdrop”. Tech manufacturer
Nanoco surged 11.25p to 43.75p after the company announced that it has sealed its first commercial order after years of missed forecasts and elusive sales. Charles Hall, a Peel Hunt analyst, said that although the “move to commercial orders has taken longer than expected”, the company “is increasingly seen as a key player in wide colour gamut display”. On the junior market, BNN Technology rose 7.25p to 59p, or 14pc, after securing a £1.1bn mobile top-ups contract in China.