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LONDON (Alliance News) - London shares were drifting between gains and losses Monday, with oil-related stocks dragging as a recovery in oil priced proved short-lived, while investors also were remaining cautious ahead of the US Federal Reserve decision later this week.

The FTSE 100 index was flat at 5,899.81 points at midday. The FTSE 250 was up 0.1% at 16,143.41, and the AIM All-Share was up 0.4% at 689.78. In Europe, the French CAC 40 and the German DAX 30 both were down 0.2%.

"European stocks fell on Monday after reports of record Iraqi output sent oil prices lower, destabilising hopes of a bottom after the massive two-day rally at the end of last week," said CMC Markets analyst Jasper Lawler.

Oil prices had rallied since Friday, with North Sea benchmark Brent oil peaking at USD32.78 a barrel before the London equities open Monday, but they have since retreated again, though remaining above USD30.

North Sea Brent crude was quoted at around USD31.13 a barrel at midday, while US benchmark West Texas Intermediate was standing at USD31.06.

Oil-related stocks were the main drag on London, with BP down 2.4%, Royal Dutch Shell down 1.0% and BG Group down 0.8%. In the FTSE 250, Tullow Oil was down 4.3%, while Amec Foster Wheeler was down 2.6%.

The exception in the sector, Ophir Energy, was up 4.4% after it said it has signed heads of terms with US oil services group Schlumberger to be its upstream partner on the Fortuna floating liquefied natural gas project in Equatorial Guinea.

The London-listed oil and gas explorer said Schlumberger, subject to the agreement being definitively agreed and to government approval in Equatorial Guinea, will get a 40% economic interest in the project. Ophir said it expects the final deal, on which no financial details were provided, to be signed in the second quarter of 2016.

Ophir also released a short trading update, with its production for 2015 averaging 13,000 barrels of oil equivalent per day for the year, ahead of guidance after its Bualuang and Sinphuhorm fields in Thailand performed ahead of budget.

CMC Markets' Lawler also said the US Federal Reserve interest rate decision, due on Wednesday, is "looming large" over equity markets, increasing caution among investors.

The Fed is widely expected to keep US interest rates on hold, following the lift-off announced in December, the first US interest rate hike since 2006. As for the European Central Bank last week, the focus is likely to be on the statement released alongside the Fed decision, where analysts expect to find the central bank highlighting downside risks and concerns about the strength of the dollar or the slump in oil prices.

"Another rate-hike so soon after raising rates in December for the first time since the financial crises would be a major shock," said Lawler. "The expectation is for US rates to remain on hold in January, so the focus will be on the accompanying statement. A 13-year low in the price of crude oil has been a dark cloud over markets but the silver lining could be that it forces the Fed to rein in its plans for four rate hikes this year".

The Federal Open Market Committee decided in December to raise the target for Fed Funds rates by 25 basis points to 0.25% to 0.50% from 0% to 0.25%. Though the decision was unanimous, the minutes of the meeting, released on early January, revealed that many policy makers were reluctant to raise interest rates, with the hike being a "close call" for some of them.

Wall Street was called for a negative open Monday, with the Dow 30 seen down 0.4%, and the S&P 500 and the Nasdaq 100 pointed down 0.3%.

In the US corporate calendar, fourth-quarter results from fast-food giant McDonald's are expected before the US market open.

Elsewhere on the London Stock Exchange, Kingfisher was the worst blue-chip performer, down 3.9%, as its announced profit-improvement plans look ambitious, according to analysts, with Investec arguing that the rewards for shareholders do not look sufficient to fully offset the risks they face.

The DIY retailer, which owns B&Q and Screwfix, announced a five-year plan to deliver a GBP500 million annual profit uplift by the end of the fifth year and a capital return of GBP600 million over the next three years. The group said it will deliver the GBP500 million per annum in extra profit on top of the profit it will generate from normal business. It expects its performance pre-transformation to be broadly in line with the macroeconomic backdrop in its respective markets, Kingfisher said.

The costs of the transformation plan will reduce reported profit, before the benefits of the plan, by GBP50 million in the first year of the plan and by between GBP70 million and GBP100 million in the second year, Kingfisher warned. In total, the five-year plan is expected to cost GBP800 million in capital expenditure, operating costs and exceptional operating costs.

Investec analyst Kate Calvert said the plan from Kingfisher looks "ambitious" and said the costs of Kingfisher's plan will lead to pretax profit downgrades for the group in its 2016 and 2017 financial plus another cut in 2019.

Shares in BT Group were down 1.5% after a group of more than 100 Members of Parliament, spearheaded by former Conservative Party co-chairman Grant Shapps, backed calls for the company's Openreach division to be separated. The group, calling themselves 'The British Infrastructure Group', called on UK telecoms regulatory Ofcom to take "radical action" over the "natural monopoly" of BT Openreach.

Ofcom has tabled the potential separation of Openreach - which is responsible for the installation and upkeep of most of the UK's broadband connections - as part of its ongoing wider review of digital communications. The British Infrastructure Group's report adds to the voices of many of BT's rivals, including Sky, who have clamoured for the division to be separated.

Mid-cap engineer IMI was down 3.6% at 786 pence after it was downgraded to Underperform from Neutral by Credit Suisse, which also trimmed its price target on the stock to 710 pence from 870p.

In AIM, shares in MX Oil were up 158%, after the oil and gas investment company said it has received a formal offer and term sheet to acquire its investment in Nigeria.

The group said value of the offer "represents several multiples" of MX Oil's current market capitalisation and said it believes selling the investment on these terms would be more attractive to its shareholders than raising equity to fund its investment to first oil. MX Oil said it will, therefore, actively progress the talks with the bidder.

Plexus Holdings was down 39% after the oil and gas engineering services company issued a profit warning as it has taken a heavy hit from the sharp downturn in activity in the oil and gas industry. Plexus said that, amid the oil price dropping heavily and a subsequent slowdown in activity by its customers, it cannot see the reduced level of activity being recovered in its current financial year to the end of June, which will hit those results significantly.

Plexus said it financial results for the year to the end of June will be "very significantly below" market expectations.

Still ahead in the economic calendar on Monday, UK Industrial Trends Survey results are due at 1100 GMT and the Dallas Federal Reserve manufacturing business index at 1530 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com

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