(Alliance News) - The threat of further destabilisation in the Middle East following a drone attack on a Saudi Arabian oil plant kept stocks broadly in the red in London on Monday, despite strong gains from two of the largest companies in the FTSE 100.
The large-cap index closed down 46.05 points, or 0.6%, at 7,321.41. The FTSE 250 ended down 135.45 points, or 0.7%, at 20,060.30. The AIM All-Share closed up 1.1 point, or 0.1%, at 887.16.
The Cboe UK 100 index closed 0.3% lower at 12,459.14. The Cboe UK 250 ended down 0.5% at 17,974.53. The Cboe UK Small Companies closed 0.1% lower at 10,939.89.
"There was only one subject that mattered today: oil. Traders have been unable to take their eyes off oil following attacks on Saudi's oil infrastructure over the weekend," said CityIndex senior market analyst, Fiona Cincotta. "The risk of elevated tensions in the Middle East dented demand for riskier assets, whist flows into safe havens increased."
Oil prices initially climbed by up to 20% before falling again somewhat. Brent was quoted at USD67.66 a barrel Monday, up 12% from USD60.32 late Friday.
Gold was quoted at USD1,502.40 an ounce, up from USD1,496.00 at the London equities close on Friday.
SpreadEx analyst Connor Campbell said global markets remained "subsumed in red on fears over the implications of oil's price rise".
Campbell continued: "Western indices weren't quite as pleased. Also dealing with some downbeat data out of China, the likes of the DAX, CAC and Dow all fretted over what these soaring oil prices will mean for growth; ditto the potential for further destabilisation in the region."
In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt ended down 0.7% and 0.6%, respectively.
Stocks in New York were lower at the London equities close, the DJIA was down 0.4%, the S&P 500 index down 0.3% and the Nasdaq Composite 0.2% lower.
The price of oil rose sharply on Monday following the drone attacks on Saudi Arabian oil production facilities on Saturday. The drone strikes on Saudi state oil giant Aramco's processing plants in Abqaiq and Khurais knocked 5.7 million barrels per day off production, close to 6% of global crude supplies.
The drone attacks, which caused fires at two facilities operated by Aramco in the eastern province of Buqyaq, was claimed by Yemen's Houthi rebels, but the US has blamed Iran for the attacks.
Buqyaq is home to the world's largest oil refining plant, according to Aramco. The disruption represents half the output of the kingdom, which is the world's biggest oil supplier. Saudi Arabia, however, has built five giant underground storage facilities in various parts of the country that can hold tens of millions of barrels of various refined petroleum products, to be tapped during times of crisis.
US President Donald Trump announced late Sunday that he has approved the release of resources from the US strategic petroleum reserve "if needed". Trump also tweeted that the US was "locked and loaded" and awaiting for word from Saudi Arabia on how the allies should respond to the attacks.
"The attack on Saudi oil is unlikely to be a disaster for the global economy. Saudi production might resume quite quickly and even if it doesn't, the implications for oil prices and developed economy inflation should be limited. But growing tensions in the Middle East are another headwind for the global economy in already uncertain times, and a full-blown conflict could trigger another leg in the global downturn," said analysts at Capital Economics.
In London, the heavyweight oil majors were experiencing a boost from the higher oil price.
BP added 4.0%, the blue chip's best performer. Royal Dutch Shell 'A' and B' shares gained 2.1% and 1.9%, respectively. Shell is London's largest company by market capitalisation, while BP is the third largest.
In addition, midcap oil stocks Premier Oil, Hunting and Cairn Energy gained 10%, 4.8% and 7.7%, respectively. Oilfield services provider Petrofac closed 3.3% higher.
Conversely, cruise line operator Carnival and British Airways parent International Consolidated Airlines Group were among the worst blue-chip performers, losing 2.2% and 2.7%. Higher crude oil prices hurt as fuel prices are linked to international oil prices.
Midcap peers Wizz Air and easyJet shed 5.0% and 2.0%, while Irish carrier Ryanair Holdings ended down 0.8%.
The rising tensions were also hurting asset managers and international-facing lenders.
St James's Place and Prudential shed 2.7% and 3.5%. Barclays and HSBC lost 2.0% and 1.9%. Midcap asset managers Intermediate Capital closed down 4.8%.
Elsewhere in the blue chip index, the London Stock Exchange Group was down 2.1% as the Financial Times reported Hong Kong Exchanges & Clearing will try to appeal directly to LSE shareholders following its rejected bid last week.
HKEX has organised a round of meetings with shareholders and regulators in an effort to persuade the LSEG board to soften its stance, the FT reported.
LSEG turned down the GBP29.6 billion bid over what it saw as "fundamental flaws", including possible issues with regulation and a belief that the amount offered was too low, calling it "substantially short of an appropriate valuation".
According to the newspaper, HKEX is to "launch a charm offensive with the LSE's investors and other stakeholders" to attempt to persuade them to accept the bid.
In the FTSE 250, oil explorer Tullow Oil added 8.4% after the firm said it made another oil discovery on the Orinduik block in Guyana.
Drilling at the Joe-1 exploration well confirmed 14 metres of net oil pay in the Upper Tertiary age. This is the first discovery in the Upper Tertiary, Tullow said.
Tullow and partners will now look at the Joe-1 data alongside that from the Jethro-1 discovery made in August. The "significant" discovery at Jethro found 55 metres of net oil pay in the Lower Tertiary.
The pound was quoted at USD1.2417 at close on Monday, lower compared to USD1.2455 at the London equities close Friday.
Turning to Brexit, UK Prime Minister Boris Johnson and the European Commission president sat down for their first face-to-face talks in a restaurant in Mr Juncker's native Luxembourg on Monday.
Following their talks, the commission said Johnson had still not made legally operational proposals to replace the backstop – the controversial contingency measure which keeps the UK closely tied to EU rules to prevent the return of a hard border with Ireland.
Luxembourg's Prime Minister Xavier Bettel went further, warning that EU citizens were facing mounting uncertainty due to Brexit while standing next to an empty podium after Johnson pulled out of a joint appearance.
"You cannot hold their future hostage for party political gains," Bettel said.
Gesturing to the empty space where Johnson should have been, Bettel said: "Now it's on Johnson – he holds the future of all UK citizens and every EU citizen living in the UK in his hands. It is his responsibility. Your people, our people, count on you – but the clock is ticking, use your time wisely."
The joint statement outside Luxembourg's Ministry of State was cancelled amid the noise of pro-EU demonstrators.
Johnson decided to only give a statement to a small group of journalists assembled at the nearby residence of the British ambassador, insisting "we have got a good chance of a deal".
The euro stood at USD1.1099, higher against USD1.1078 at the European equities close Friday.
Tuesday's domestic corporate calendar has half year results from wealth manager JTC, recruiter Staffline, employee services provider Personal Group and retailer French Connection Group. Online supermarket Ocado Group is scheduled to release its third quarter results.
On Tuesday, the economic calendar has China house price index overnight, the German ZEW indicator of economic sentiment at 1000 BST, the US Johnson Redbook retail sales index at 1355 BST, US industrial production figures at 1415 BST and the US NAHB housing market index at 1500 BST.
Looking towards the rest of the week, Forex.com market analyst Fawad Razaqzada commented: "Meanwhile, with lots of central bank meetings to look forward to this week, the focus for equity investors could quickly turn to interest rates from oil prices. Clearly, most of the attention will be on the Federal Reserve on Wednesday. A 25-basis point rate cut is widely expected, and it would be a major shock if the Fed doesn't deliver.
"But some, including Donald Trump, want more than just 25 basis points. In fact, the US President has called for 'boneheads' Fed to cut rates to zero or lower in a tweet last week. Understandably, with US data not deteriorating as badly as, say, Germany, the Fed is reluctant to cut aggressively and rightly so. The risk therefore is that the Fed refuses to provide a dovish outlook for interest rates. In this potential scenario, a rate cut might only provide mild support for stocks. With most other major central banks already being or turning dovish, the Fed will also need to be super dovish for stocks to rally meaningfully."
