The FTSE 100’s weighting towards natural resources helped London’s leading index outperform European peers on Monday.

Oil majors were behind the FTSE 100’s relative outperformance on Monday after OPEC announced a supply cut that sent oil prices soaring. WTI and Brent oil futures contracts were both trading over 5% higher at the time of writing.

While higher oil prices will be welcome news to oil and gas investors, higher energy prices are the last thing governments and central banks want to see.

Over the past six months, subdued hydrocarbon prices have been a significant factors in falling inflation. 

Rising oil prices could now threaten all recent inflation and interest rate forecasts for the rest of this year. They may also push back expectations of when interest rates will eventually fall.

Concerns about the impact of oil prices were most evident in US futures. S&P 500 futures traded lower before rallying back to break even.

“The world needed a spike in oil prices like a hole in the head. Just as one of the pinch points in the global economy had started to ease, Saudi Arabia and its counterparts in OPEC have unveiled a surprise output cut,” said Danni Hewson, head of financial analysis at AJ Bell.

“The decision by the oil producers’ cartel, unusually taken outside of any officially scheduled meeting, represents a flexing of its muscles and potentially a pre-emptive move as it anticipates a drop-off in crude demand relating to the collapse of SVB and ensuing banking crisis.

“It is this crisis which has helped box central banks in when it comes to their ability to control inflation as they have to think about their role in preserving financial stability too.”

Although OPEC’s surprise cut in production will cause a major headache for central banks and governments, Hewson spelled out the benefits of higher oil prices for the FTSE 100 index.

“Rising oil prices imply higher costs of energy, transportation and other areas like plastic. The heavy exposure of the FTSE 100 to energy and resources stocks is looking like an attribute again as index heavyweights BP and Shell help lift the index. It is telling that the more domestic focused and diversified FTSE 250 is down a smidge on Monday.”

BP and Shell were both in excess of 4% higher and added a significant number of points to the FTSE 100 on Monday. Centrica was up 2%.

The prospect of higher interest rates for a longer period provided support for the FTSE 100’s banks as Barclays, Lloyds and Standard Chartered and HSBC all added more than 1%.

Cineworld shares sank on Monday as equity holder value destruction ratcheted up with developments in their restructuring plans.

New equity will be issued to lenders as part of a restructuring deal. Cineworld also announced a rights issue to raise additional capital. The rights issue will be offered to existing lenders and seeks to raise $800m.

Cineworld said their restructuring plans do “not provide for any recovery for holders of Cineworld’s existing equity interests.”

Cineworld shares were down over 22% at the time of writing. 

“Cineworld’s shareholders had been given plenty of warning their investment in the business could be wiped out by a debt restructuring and this looks like it will soon happen. The company’s lenders are going to gain control through a debt for equity swap and a rights issue, giving Cineworld yet another throw of the dice to try and sort out its finances,” said Danni Hewson, head of financial analysis at AJ Bell.

“Keeping the US and UK operations and only potentially selling its Eastern European and Israeli sites will streamline the group and put it in a better position to ride the recovery in the cinema industry – if it comes.”

Hewson continued to explain the deep issues facing cinemas with the rise of streaming platforms.

“That’s a big ‘if’ as competition from streaming platforms has become intense and film-lovers are increasingly happy to watch new releases at home. It helps that gigantic flatscreen TVs are much more affordable these days, as are speakers, so it is easy to create a good cinema experience in the home.”

Tekcapital portfolio company, Belluscura, has started manufacturing its X-PLOR^TM portable oxygen concentrator in China.

The agreement to begin manufacturing in China was made with InnoMax Medical Technology in 2022 and the move is hoped to accelerate Belluscura’s overseas expansion.

The Asian Pacific medical oxygen concentrator market expected to reach $1bn by 2027.

Belluscura shares were 15% higher after the announcement in early trade on Monday.

“We continue to make good progress, with manufacturing in China commencing, increased orders for X-PLOR and the tremendous reception of DISCOV-R by the industry at Medtrade,” said Robert Rauker, Chief Executive Officer, Belluscura.

Award

In addition to announcing Chinese manufacturing, Belluscura announced their DISCOV-R had received the Silver Award in the Best New Product category at Medtrade.

Medtrade is the largest home medical equipment trade show in the US and participants said Belluscura’s technology was ‘transformational’ for the oxygen supply industry.