The FTSE 100 was higher on Tuesday as oil prices rose and BP reported a doubling of profits, driven by higher oil prices stemming from the Middle East war.
Although London’s leading index was higher on Tuesday, the gains were narrow and looked vulnerable to a weakening in sentiment.
“A matter of weeks ago oil moving through $110 per barrel would be enough to give markets the willies but they seem to be in wait-and-see mode right now,” said Dan Coatsworth, head of markets at AJ Bell.
“Energy prices are reacting to stalled talks between the US and Iran and a blockage of the Strait of Hormuz which has now extended to the best part of two months – with just a few fleeting moments of the key shipping route being open.
“Equity markets remain resilient. The FTSE 100 was higher thanks to its oil and gas heavyweights BP and Shell.”
BP and Shell were the best performers at the time of writing on Tuesday as Brent oil prices rose above $110, with little progress in talks between the US and Iran raising fears of a prolonged closure of the Strait of Hormuz.
BP was the FTSE 100’s top gainer at the time of writing as a mix of higher oil prices and strong Q1 results boosted shares.
Mark Crouch, market analyst for eToro, says: “BP’s first-quarter earnings offer a timely reminder of just how abruptly the pendulum can swing in the energy sector. Underlying profits jumped to $3.2 billion, boosted by a powerful mix of elevated prices and exceptional trading conditions, even as disruptions in the Middle East weighed modestly on operations.
“In many respects, BP has both absorbed and benefited from the same geopolitical tensions, with volatility once again proving a tailwind for an integrated major.”
We’ll learn more about higher oil prices and their potential impact on interest rates this week with an update from the Bank of England due on Thursday.
Nowhere has been hit harder by concerns about what the war in Iran could mean for interest rates than the FTSE 100 housebuilders, who have been crushed since the war began.
Providing insight into the real-world effect of the war, FTSE 250 company Taylor Wimpey released a trading statement on Tuesday showing sales rates falling and the order book shrinking. Warning of cost inflation will also be a concern for investors.
The drop in Taylor Wimpey shares on Tuesday weighed on FTSE 100 housebuilders Persimmon and Barratt Developments, which were down around 1%.
Compass Group shares were 1.7% lower and the FTSE 100’s biggest decliner.