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LONDON (Alliance News) - London stocks opened sharply lower Wednesday, tracking losses seen in Asian markets, with the continuing slump in oil prices hitting commodity stocks as global oil production is set to increase in 2016.
The FTSE 100 index was down 2.4% at 5,737.89 points, the FTSE 250 down 1.7% at 15,843.50 and the AIM All-Share down 1.0% at 686.30. In Europe, the French CAC 40 was down 2.3% and the German DAX 30 down 2.5%.
"The market mood soured overnight - again - as the International Energy Agency warned of an oil glut as Iran returns to the market and other major producers keep supply coming," said Societe Generale analyst Kit Juckes.
With global oil production growth continuing to outpace a rise in demand during 2015, oil prices look set to come under further pressure this year as the overhang in the market is set to be exacerbated by production coming in from Iran, according to the International Energy Agency.
The IEA, an autonomous organisation made up of 29 member states focused on energy security, development and the environment, warned Tuesday that global oil production is set to continue to increase in 2016, placing further pressure on the market which is already struggling to deal with prices that have fallen below the USD30 a barrel mark.
The IEA said global oil supplies expanded by 2.6 million barrels of oil per day during 2015, building on the 2.4 million barrel a day expansion experienced in 2014, as OPEC continued to ramp up production in its stand off with US shale producers.
North Sea benchmark Brent crude was quoted at USD28.04 a barrel after the London equities open Wednesday, just above a low of USD28.02 a barrel touched overnight. Meanwhile, US benchmark West Texas Intermediate is quoted at USD28.70 a barrel, above its Tuesday low of USD28.19.
Royal Dutch Shell said its earnings plummeted in 2015 as a result of lower oil prices, but the oil and gas major sought to alleviate concerns over the future of its dividend.
The oil giant said full-year current cost of supply earnings excluding items is expected to be in the region of USD10.40 billion to USD10.70 billion, little more than half the USD19.04 billion in 2014, whilst income attributable to shareholders will be around USD1.60 billion to USD2.00 billion, also a fraction of the USD14.87 billion a year ago.
Shell said its 2015 dividend will be USD1.88 per share, and said its dividend in 2016 will be at least that amount. The 2015 dividend is flat from 2014.
Meanwhile, BG Group said earnings dropped in 2015 as expected, but said those results are in line or ahead of expectations.
"Our excellent operational performance in 2015 is expected to deliver results in line with, or ahead of, our guidance for the year," said Chief Executive Helge Lund.
The oil and gas company, which is a week away from a landmark shareholder vote on the company's proposed merger with Shell, said it expects to report total results earnings of "at least" USD2.30 billion in 2015, nearly halving from USD4.03 billion in 2014. Business performance earnings are expected to be around USD1.70 billion, considerably down from USD4.34 billion a year ago.
Shell 'B' shares were down 4.1%, while its 'A' shares were falling 3.9% at the open. BG Group shares were down 2.2%. Peer BP was down 2.7%, while oil-related stocks Tullow Oil and Amec Foster Wheeler were down 4.5% and 4.0%, respectively.
Asian stocks received a boost on Tuesday on expectations of further stimulus to the Chinese economy, but gave back those gains on Wednesday, dragged by the decline in crude prices.
In China, the Shanghai Composite index closed down 1.1%, while the Japanese Nikkei 225 ended down 3.7%. The Hang Seng in Hong Kong dropped 3.6%.
London-listed miners were the most benefited from the Chinese data on Tuesday. However, they were giving back those gains at the open Wednesday, with Anglo American down 6.7%, Glencore down 6.2%, BHP Billiton down 6.1%, Fresnillo down 4.2%, and Rio Tinto Down 4.0%.
BHP Billiton reported late Tuesday its iron ore production for the second-quarter rose 1% year-over-year to 56.96 million tons, but it cut its financial 2016 total iron ore production guidance by 10 million tons to 237 million tons due to the suspension of production at its Samarco joint venture in Brazil.
BHP said it expects underlying attributable profit in the December 2015 half year to include additional charges in a range of about USD300 million to USD450 million. Total iron ore production for the half year increased by 4% to 118 million tons from the prior year.
The pound didn't recover from its heavy fall on Tuesday, after Bank of England Governor Mark Carney pushed back expectations for an interest rate hike in the UK, citing weak domestic growth and turmoil in the global economy.
Sterling was quoted at USD1.4165 shortly after the London open, having touched a low of USD1.4127 on Tuesday, a level not seen since mid-2010.
In the economic calendar Wednesday, the UK's unemployment rate is due at 0930 GMT. In the US, the consumer price index is due at 1330 GMT, while the Redbook index is scheduled for 1355 GMT.
Meanwhile, the World Economic Forum starts in Davos, Switzerland on Wednesday. US Vice-President Joe Biden and Canadian Prime Minister Justin Trudeau will be speaking.
By Daniel Ruiz; danielruiz@alliancenews.com
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