The FTSE 100 retreated on Thursday in a second day of declines as investors digested the impact of OPEC’s decision to cut production by 2 million barrels.
Oil prices had declined steadily in recent months which has led to lower prices at the pump – a welcome saving as interest rates rise and household energy rates soar.
However, OPEC’s move to cut production will once again hurt consumers, just as winter heating bills start to erode household budgets.
The FTSE 100 was down 0.7% at 7,001 at the time of writing.
“With the oil price ratcheting back up there is also going to be more pain at the pumps to come, especially with fresh weakness in sterling. Brent crude is still hovering around $93, up around 10% in a week after OPEC+ countries agreed a cut in production at top of the range expected, by 2 million barrels of oil per day,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“Higher oil prices might be inducing a severe inflation headache for many countries around the world, but they have been a bonanza for oil producers and they want the good times to continue to roll. Saudi Arabia has justified the cut because of weakening demand in the global economy brought on the continual ramp up in interest rates.”
Yet there were signs this ‘bonanza’ was coming to end on Thursday with Shell signalling an end to extraordinary profits.
Shell was the biggest drag on the index following a revision to their outlook due falling refining margins. Having enjoyed the higher price of oil earlier this year, the oil major said indicative refining margins would be $15/bbl in Q3, compared to $28/bbl in Q2 2022 due to falling oil prices through the summer.
Shell shares fell 4.7% and BP dropped 1.6% in sympathy.
Imperial Brands
Imperial Brands was the FTSE 100’s top gainer, adding 3.6% after the tobacco and vaping company said they would return £2.3bn to shareholders through dividends and buybacks as they deliver on their five-year plan.
“Imperial Brands’ update would give you the impression nothing bad is happening in the world. The cigarette and vaping company has so much spare cash sloshing around that it is going to return £2.3 billion to shareholders via dividends and share buybacks. That’s 13% of its market value, which is astonishing,” said AJ Bell investment director, Russ Mould.
US jobs data
Markets will receive the latest instalment of US jobs data tomorrow and a signal of what the Federal Reserve may do next to bring soaring inflation under control.
Economists polled by Reuters expect 250,000 jobs to be added in September.