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Investors flood to oil on Opec deal but bonds tumble

Investors flood to oil on Opec deal but bonds tumble

BP and Shell have enjoyed a second successive day at the top of the FTSE 100 as investors flocked to oil in record numbers following Opec's historic deal to cut production.

BP (BP) was up 2.7% at 471.8p while Shell (RDSb) rose 2.4% to £21.70, the biggest risers on the index as the price of Brent crude hit $51.84, up more than 10% from the levels it was trading at yesterday morning, before a strong rally on hopes of a deal kicked off.

The FTSE 100 dropped 43 points, or 0.6%, to 6,740, however, as all non-energy sectors fell into the red as part of a broad sell-off.

The boost to energy stocks follows the Opec cartel of oil producing nations' deal for its first output cuts since 2008, with Saudi Arabia accepting a big hit to its production levels and even non-Opec member Russia agreeing to curtail output.

Investors flooded into the oil markets on the news, with more than $39 billion traded yesterday in Brent crude, more than eight times the world's daily consumption and smashing previous records.

But Dominic Rossi, global chief investment officer for equities at fund group Fidelity, warned against investors chasing the rising oil price.

'I would not get too excited by the Opec cut,' he said. 'Compliance will be a problem, and the Russians will pump more gas instead. In the meantime, the long-run marginal cost of US shale continues to fall. I would not chase this oil price rally too hard.

The move also helped lift oil companies on the FTSE 250 to the top of the index for the second successive day. Hunting (HTG) was up 5% at 567p, Weir (WEIR), which makes pumps and valves for the oil industry, was up 4% at £18.81, and Amec Foster Wheeler (AMFW) rose 3.5% to 451.1p.

Among 'small cap' oil stocks, Ophir Energy (OPHR) rose 6% to 84.3p and EnQuest (ENQ) rallied 5% to 31.3p. The JPMorgan Russian Securities (JRS) investment trust was also a strong riser, up 5.8% at 480p.

The surge in oil had a big impact on the bond markets, as investors feared the impact on inflation, which cuts into the value of fixed income coupons.

The yield on 10-year gilts, as low as 1.35% as markets closed on Tuesday, was trading at 1.46% after two days of a surging oil price, while the yield on 10-year US treasuries hit 2.41%, their highest level since July 2015.

That move also took its toll on 'defensive' FTSE 100 stocks, valued for their reliable dividends. Unilever (ULVR) was down 3.4% at £30.87, Severn Trent (SVT) fell 2.7% to £21.27 and British American Tobacco (BATS) dropped 2.2% to £42.98.

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