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Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:11 EDT, 15 May 2008

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Hard-pressed motorists have suffered almost 30 consecutive days of record fuel prices at the pumps, but there are few signs of things improving. In fact, it looks as though petrol and diesel will continue rising in the months ahead.

Evening Standard's Mickey Clark

Broker UBS is forecasting that the price of a barrel of oil will reach $200 within seven years, echoing similar forecasts by Goldman Sachs, with extreme price volatility continuing.

UBS has also raised its forecast for the prices of Brent crude and West Texas Intermediate dramatically, with demand continuing to outstrip supply. The broker expects Brent to average $113.50 this year - an increase of 30% on its previous forecast - rising dramatically to $120 on average next year (a 52% gain on its previous forecast), before easing back to $116 in 2010. West Texas Intermediate is pitched at $115 this year, rising to $120 next year.

UBS is house broker to Cairn Energy, and has lifted its rating on the oil explorer from neutral to buy and jacked up its target price from 3250p to 4500p. Cairn responded by helping to lead other blue-chips higher with a jump of 144p to 3532p. Cairn, with huge oil reserves in Rajasthan, is one of the broker's top sector picks.

UBS has also raised Dana Petroleum, 9p better at 1887p, from neutral to buy and raised its sights on the price from 1850p to 2500p, ahead of what is expected to be positive news on drilling and its exposure to rising gas prices.

It is also a buyer of Imperial Energy, 7p cheaper at 949p, with the target jacked up from 1200p to 1450p, Premier Oil, 35p dearer at 1667p, raised from 1800p to 2500p and Venture Production, up 41p at 8230, upgraded from 900p to 1350p. Tullow Oil, 22p better at 924½p, is rated neutral with a 1050p target.

Shares generally recouped opening falls but investors remain cautious. Bank of England Governor Mervyn King's bearish comments on the economy continue to ring in their ears. He has warned that the good times are over, and hinted there is every likelihood of slipping into recession.

The FTSE 100 index rose 35.8 to 6251.8, having been as low as 6168.8. Wall Street opened a touch lower after a sharp drop in industrial production during April. The Dow rose 22.07 to 12,898.38.

Bank shares again came under the hammer following the trading update from Barclays, down 8½p at 418¾p.

Royal Bank of Scotland rose 1.98p to 267p despite falling 46¾p to 272½p after the shares went ex its £12bn rights issue with the nil-paid trading at 75¼p after briefly touching 78p. Bradford & Bingley continued to lose ground in the wake of yesterday's £300m cash call, the shares falling 9p to 135p. Lehman Brothers has repeated its underweight rating and trimmed its target from 174p to 160p. Collins Stewart has cut from hold to sell and repeated its 135p target.

British Energy firmed 1½p to 680p. The board met today to consider the takeover approach from France's stateowned electricity supplier EDF, which is believed to have offered 650p a share. Word is the directors will hold out for a higher offer.

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It was the first day of dealings on Aim for independent stockbroker Share, owner of The Share Centre. Shares were offered at 27p, valuing the company at £43.2m. They touched 36½p before settling at 31½p.

Citigroup has cut WH Smith, steady at 417½p, from buy to hold and repeated its target of 420p following recent impressive numbers. The broker says, given the retailer's recent share-price performance and lack of near-term trading catalysts, it is downgrading its rating. The price touched a four-year high of 441½p last week, having started the year at 295p.

TOMORROW'S AGENDA

• British Airways may have to issue its second profit warning of the year when it unveils full-year results, as record fuel costs hit earnings. With the cost of crude forecast to keep rising, the carrier has already said it expects fuel to become its biggest single cost by next year. Price pressures have been eased by raising fuel surcharges but BA may feel unable to pass on further increases as consumer spending slows.

Fears also remain about the reputational damage caused by the botched opening of Heathrow's Terminal 5, although the financial impact will mostly fall in next year's results. Despite the problems, analysts forecast pre-tax profits will rise to £877m.

• Bookmaker Ladbrokes issues a trading update. Despite chief executive Chris Bell claiming in February that he has seen no evidence of consumers curbing spending, broker Evolution Securities has warned the outlook for the company remains 'worrying'.

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