Market Report: Gulf of Mexico optimism fails to stop BP falling

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Claims that its final bill for the Gulf of Mexico tragedy is being hugely overestimated failed to stop BP sinking last night, as oil prices plummeted after the International Energy Agency (IEA) revealed it was releasing 60m barrels from its reserves.

The energy giant, which has lost around a third of its share price since the explosion in April 2010, had its rating upgraded by Evolution Securities to "buy" yesterday, with the broker saying the process of agreeing settlements with other companies involved in the disaster may be hastened by next year's US presidential elections.

"2012 is election year in the US and we suspect President Obama would prefer that the Macondo accident is no longer front page news, so the administration may push for an early closure on this issue," said Evolution's analysts.

Pointing to the announcement earlier in the week that one of BP's contractors, Weatherford, has agreed to pay $75m (£47m), they added that "recent settlement issues are moving in BP's favour, and the final bill could be much, much lower than feared or currently implied in the share price".

Despite the analysts estimating BP's shares could rise at least 15 per cent, the group was driven back 9.75p to 435p as the IEA's announcement prompted a sharp drop in oil prices, with Brent crude at one point dipping below $106 a barrel – a fall of more than $8. The news also pushed Royal Dutch Shell down 47.5p to 2,112.5p, while Essar Energy and Cairn Energy fell 17.7p to 394p and 13.9p to 383.1p respectively.

The decision was by no means the only factor weighing on the FTSE 100, which slumped 98.61 points to 5,674.38. Sentiment was low before the session began, after the Federal Reserve chairman Ben Bernanke said late on Wednesday that growth in the US this year would be lower than expected.

Vedanta Resources ended up with the wooden spoon, shedding 135p to 1,832p, as the miners were also knocked by poor factory sector data from China.

After being hit by fears over the cost of plans to force them to ring-fence their high street operations earlier in the week, banks continued to fall, with little enthusiasm for Nick Clegg's shares proposal. Royal Bank of Scotland slipped 1.91p to 36.74p as Morgan Stanley cut its earnings per share expectations for the next two financial years by over 20 per cent, while Lloyds Banking Group fell 1.73p to 45.27p, its lowest level since 2009.

HSBC and Standard Chartered, however, managed to limit their losses, edging down just 4.5p to 601.1p and 16.5p to 1,533.5p respectively after Citigroup said a number of European banks had been oversold and the two were among its top picks in the sector.

Reheated bid talk helped J Sainsbury touch 332.2p in early trading, although the group ended up creeping down 2.9p to 323p. Once again market gossips were getting excited about a potential approach from the Qatar Investment Authority (QIA), with vague rumours suggesting the Qatari sovereign wealth fund has taken a fresh look at the supermarket's property portfolio ahead of making a possible offer.

QIA's Delta Two fund failed with a 600p a share bid in 2007, but since then Sainsbury's has dropped more than 40 per cent, and the speculation suggested a new approach from QIA could reach 500p a share.

There were further takeover developments on the FTSE 250, where Misys increased 4.6p to 415p after the US payment services provider Fidelity National Information Services revealed it was behind the approach for the software group which was announced earlier in the week.

The activity around Misys has helped a number of its peers recently, raising hopes that other companies in the sector could receive approaches, but Peel Hunt's analysts warned against such a move, saying Autonomy (down 52p to 1,646p), Aveva (down 26p to 1,636p), Logica (down 3.3p to 127.1p) and Sage (down 4.3p to 277.7p) were all "unlikely bid targets".

Imagination Technologies maintained its slide in the wake of Wednesday's final results, charging down 64.9p to 349.6p, meaning that it has lost nearly 20 per cent in the last two sessions. Morgan Stanley cut its advice on the chip designer to "equal-weight", while Numis Securities, JP Morgan Cazenove and Morgan Stanley all reduced their price targets.

Also falling was Micro Focus, which was knocked back 27.5p to 326.5p after releasing its preliminary results. Market voices were bemoaning the company's outlook comments which seemed to promise little chance of a turnaround any time soon, while the group gave few further details on the news last month that it had received a number of approaches,apart from the fact talks were continuing.

On the small-cap index, Sportingbet rocketed up 6.75p to 49.25p after speculation on Wednesday it could be a target for Ladbrokes proved correct. The two companies confirmed the chitter-chatter, saying that "highly preliminary" discussions had taken place, as the mid-tier index bookmaker eased back 0.3p to 146.2p.