The FTSE 100 was firmly higher on Monday as the escalating conflict in the Middle East kept oil prices at elevated levels, providing support for oil majors BP and Shell.
London’s leading index was 0.4% higher at the time of writing, with Entain topping the leaderboard following an upgrade to full-year guidance for its US joint venture with MGM.
After weakness going into the weekend, most FTSE 100 shares were higher, and US futures were pointing to a stronger start to cash trading.
“European shares were surprisingly resilient against a backdrop of uncertainty,” said Russ Mould, investment director at AJ Bell.
“Helping to prop up FTSE 100 was continued strength in oil prices as tensions remained high in the Middle East. Crude oil rose 1.1% to $72 per barrel, driving shares in FTSE heavyweights BP and Shell and taking the broader market upwards in the process.
“Global oil prices jumped last week after Israel attacked Iran, raising concerns about major disruptions to supply. Despite a weekend of violence between the two countries, investors showed no signs of panicking, judging by movements in financial markets on Monday. Future prices imply a positive day for Wall Street when US markets open later on.”
Some analysts have predicted oil could rise above $100 a barrel if the conflict continues. Oil prices at $70 will be welcomed by investors in oil-producing stocks, but many will be buying oil shares today to position themselves for a spike in oil prices towards $100, a level that has previously yielded bumper cash flows for companies such as BP and Shell.
However, the current oil market dynamics mean there will have to be a significant uptick in disruption to cause any lasting bid in oil prices.
“Despite the spike, the oil market wasn’t structurally tight heading into this event. Global demand remained firm, and OPEC+ had been limiting supply, but spare capacity was ample,” explained Lale Akoner, global market analyst at eToro.
“Iran, for instance, produces around 3 million barrels per day (~4% of global output), and OPEC holds roughly 4 million barrels per day in spare capacity, mostly in Saudi Arabia. That buffer significantly reduces the risk of a sustained oil price shock from isolated disruptions.”
Oil prices trading slightly negatively at the time of writing on Monday reflect the ability for oil-producing countries to ramp up output if called upon.
Entain was the FTSE 100’s top riser after BetMGM, its joint venture with MGM Resorts, increased its guidance for net revenue to $2.6bn from the previous range of $2.4bn – $2.5bn. EBITDA is now expected to be $100m.
Entain shares were over 11% higher at the time of writing.
“The latest update from Ladbrokes owner Entain revealed why the US is seen as the promised land for UK gambling outfits as its BetMGM joint venture came up trumps,” Russ Mould said.
“The momentum seen in the first three months of the year has continued into the second quarter and, from just about inching into profitability, Entain now sees a meaningful profit coming from the venture. The upgraded guidance lends credibility to its longer-term ambitions for earnings from the venture, too.”