FTSE 100 close: Oil price dive hits shares in 11th hour

By Andrew Oxlade
Updated: 12:09 EDT, 24 September 2009

A late sell off in the oil price sent London shares down further by the close.

In the City: Latest movements from the Square Mile.

Crude slipped below $67 a barrel which pulled down the heavyweight oil stocks. Oil fell out of favour yesterday after a surprise rise in US inventories, highlighting the fragile state of demand in the economy.

Today it fell again, down $2.12 to $66.85.

Shell was up 11p at 1,749p, although it had touched 1,770p at lunch time. BP was down 5.6p at 547.2p and Tullow Oil was 21p lower at 1,139p.

The US opening failed to lift the mood. All the major indices fell ahead of the G20 summit in Pittsburgh.

'With the topic of conversation set to be the banking sector its no surprise to see traders a little nervous,' said Jimmy Yates, head of equities at CMC Markets. 'The banking sector is currently responsible for 12 points of the FTSE loss.'

Initial jobless claims numbers were also worse than hoped, with some analysts suggesting that those figures, and the implications for the economy, contributed to the drop in oil.

The Dow Jones Industrial Average opened higher but fell back to sit 61.89 points lower at 9,686.66 by the London close.

Earlier, shares in London fought back from a poor start. Confidence was knocked but the Fed's comments of an earlier than expected removal of some of its support for the US economy.

The FTSE 100 recovered by lunchtime to step into positive territory. But the rebound was shortlived and the FTSE 100 closed 60.1 points lower at 5079.3. It follows a 3-point fall yesterday. With five trading days to go, the index is still on course for its biggest ever quarterly rises. Its rolling three-month rise is currently 19% or 817 points, up from 4,284.

The pound suffered after Bank of England Governor Mervyn King was reported as saying a weak pound was 'helpful' in rebalancing the UK economy to once again become a net exporter. ›› Read the story here

After his comments, sterling lost well in excess of 1% against all major currencies, almost hitting a 6 month low against the euro. Against the euro, Sterling was down 1.59%, hitting €1.0946, whilst against the US Dollar it was down around 1%, with a day low of $1.6052.

With oil prices nose-diving, it should, in the long run, be good for the likes of British Airways. Investors today were more concerned about Citigroup withdrawing its buy rating on the stock, following a rally in the shares, and fellow broker UBS said the company's earnings recovery would only show through late next year. BA was among the top Footsie fallers, down 9.9p to 220p, a drop of 4.3%.

• Look up all the top risers and fallers

UBS said the trend for passenger numbers, capacity and yields is still one of decline. It reckons these will hit the bottom for BA in 2010 before picking up in 2011, but it will take another year for the company to drag itself back into the black.

Pubs were under the spotlight again after Mitchells & Butlers, owner of O'Neill's, All Bar One and Harvester, warned of a gloomy outlook in 2010. Like-for-like sales growth was 2.6% in the past 10 weeks, including 5.8% in food sales - better than expected. M&B, down 9.6p at 274.6p, is worried the prospect of further rises in unemployment and the impact of January's VAT increase.

The sector suffered yesterday after a bearish broker note. UBS advised selling four of the biggest operators: Enterprise Inns, Marston's, Greene King and Mitchells & Butlers.

Enterprise Inns, up 0.8p at 133.2p today, ranked among the biggest fallers in the FTSE 250 yesterday. Others also recovered with Punch Taverns one of the biggest risers in the mid-flight, later closing 1.9p up at 123.3p.

Retailer JJB Sports was again making headlines for the wrong reasons today, reported half-year losses of £42.9m. It recently avoideed administration thanks to a deal with landlords and earlier this month JJB said it had blown the whistle to the competition watchdog on alleged cartel activity in the sports retail market. A Serious Fraud Office investigation will follow. Today JJB said the SFO had confirmed its inquiries were focused on 'the activities of certain individuals' rather than the company.

JJB shares dropped 1p - nearly 3% - to 38.5p. They have risen 150% over the last six months on recovery hopes but are still down by 68% on the year. Recent trading is said to have 'steadily improved' since the end of the first half.

Shares in the London Stock Exchange fell heavily, down 27p at 852.5p, after it said the average daily value traded on its SETS electronic trading system declined by 43% in the five months to the end of August.

3i was also down, off 9p at 279p, after it extended its revolving credit facilities to 31 October 2012 but cautioned that private equity and mergers and acquisition markets remain subdued.

Credit Suisse told clients the market will become tougher for Sky. With the UK pay-TV and broadband market becoming mature, it says Sky must change its strategy from market expansion to grabbing customers off rivals. The bank thinks Sky's broadband division will struggle to meet its target to break even by 2010.

Media analyst Nick Bertolotti predicts that if Sky drops its HD subscription charge, this would threaten more than 10% of forecasts for earnings. He sets a 430p target price for Sky's shares, with a sell rating. Today, they rose 5.5p to 560p after Sky released independent findings criticising Ofcom's proposals for the pay-TV market.

Looking ahead

Tomorrow sees interim updates from a handful of small caps: Afren, Alexon Group, Dillistone, Metalrax Group and Tex Holdings. There will also be a trading update from Tate & Lyle. The sugar giant has left investors with a bitter taste in recent years from a series of profit warnings. Analysts hope there will be no surprises tomorrow. Estimates for the full year to the end of March put pre-tax profits at £144m.

Also tomorrow will be figures on durable goods rrders in the US and an update on new home sales. A revision to earlier GDP figures will also confirm whether or not France had growth of 0.3% in the second quarter (April to June), giving it a technical exit from recession.