It has felt a bit like the FTSE 100 was singlehandedly being kept afloat by the big oil stocks, BP and Shell, in recent weeks but Thursday’s modest move higher for the index shows it is more than a one-trick pony with both these heavyweights lower in early trading.
BP and Shell fell thanks to a slump in oil prices in response to US President Joe Biden’s reported plan to flood the market with barrels from the country’s strategic petroleum reserve.
However, it is noteworthy that despite Biden pledging the biggest release from the reserve since the 1970s, oil remains stubbornly above $100 per barrel.
“You can understand why the US leader felt he had to do something, given the political heat he is getting for rising fuel prices, however a speculated release of one million barrels of oil per day over the coming months has to be seen in the context of total global output of around 100 million barrels per day,” said AJ Bell investment director Russ Mould.
“Really this is tinkering at the margins. What might put more of a brake on prices is action by OPEC at its meeting later but the extent to which it could increase production, even if it wanted to, is open to question.
“Another factor which could tip the scales is a global economic slowdown and more lockdowns in major energy consumer China.
“The other key focus remains the war in Ukraine with mounting scepticism over the destiny of the latest round of peace talks – the market may have to accept this will be a protracted conflict and adjust its assumptions accordingly.”