Market Report: Syria tensions drive oil majors higher
Thursday 29 August 2013
A dire situation in Syria and the threat of military intervention pummelled stocks globally but investors rushed to invest in oil and gas giants, betting the oil price will continue to spike.
The Syrian situation pushed oil to a six-month high and oil groups BG Group, Shell and BP all benefited.
Mike van Dulken, the head of research at Accendo Markets, said: "As the situation in the Middle East escalates and the prospect of imminent military intervention in Syria looks a real possibility, it raises concerns about supply of such an economically key commodity. Brent crude is up at a six-month high … and US light crude is trading at levels last seen in May 2011."
BG was 57.5p higher at 1,267.5p, Shell rose 44p to 2,221p and BP 5.55p to 452.65p.
The wider market was weak as traders remained nervous. The Bank of England's Governor, Mark Carney, clarified his forward guidance on interest rates.
Will Hedden, a trader at the spreadbetting group IG, said: "Markets for once are of a more positive disposition, thinking that the general improvement in the UK economy and, more generally, the global one, will continue, forcing the MPC's hand ahead of expectations."
The FTSE 100 slipped 10.91 to 6,430.06, and Mr Hedden added: "With only two days of trading left in August it is entirely possible that we will see markets suffer further losses."
On the mid-cap index, BG Group's partner in an oilfield in Tanzania announced the completion of a well appraisal. Ophir Energy owns 40 per cent of the Pweza-2 well and BG has 60 per cent. Shares in Ophir, which is part-owned by the Indian steel tycoon and Queens Park Rangers part-owner Lakshmi Mittal, have lost more than 15 per cent since the beginning of August, after a sell-off following its half-year results. The group has also suffered since Mr Mittal sold half of his stake in February. But analysts at Investec warned that the market had "become myopic towards Ophir" and had a too narrow focus on single prospects that had "obscured the real exploration narrative" of the oil and gas explorer.
Investec has reduced its price target to 390p from 520p but retains its buy rating for the group, which edged up 5p to 320p.
Traders looking for takeover tittle-tattle could revisit the water and waste group Pennon after analysts at JPMorgan said investors should rule out M&A activity in the utilities sector, despite the failure of Canadian-led bidders to buy Severn Trent this summer.
UK water groups will be hit with new regulations at the end of next year when Ofwat announces its final rulings. But JP Morgan said the cost of borrowing was low and there was "no immediate risk" of the regulator preventing a company from piling on debt.
JPMorgan's Edmund Reid said Pennon's waste business "offers both structural growth and the potential for cyclical upside", and raised it to buy, up from neutral, with a 745p target.
The recommendation helped Pennon gain 12.5p to 693.5p. It has been a rumoured takeover target for some time, with traders speculating French services company Veolia could be interested in Pennon's waste subsidiary Viridor.
The printing specialist Xaar produced a 39.5p gain to 869.5p ahead of its half-year results today.
The industrial property group Hansteen benefited from the demise of Warner Estate Holdings and advanced 3p to 99p. Warner has filed for administration and Hansteen will take over the management of Aviva's £460m Ashtenne Industrial Fund that was handled by Warner, while all 95 staff will transfer to Hansteen. Hansteen is spending £52m on a 26.3 per cent stake in the fund.
Spurious bid rumours accompanied a 2.75p rise to 88.25p for the European electrical retail group Darty.
Oxford BioMedica was 0.33p healthier at 1.74p after it received $1m (£643,000) from the drugs giant Pfizer thanks to the start of a cancer treatment trial.
The big data technology specialist WANDisco gained 15p to 997p after it announced it is hiring the former BT executive Richard Fletcher as vice-president of worldwide engineering.
Premier African Minerals announced a "positive" mining study from its Tungsten project in Zimbabwe and advanced 1.55p to 2.2p.
CareTech Holdings, a social care provider, rose 9p to 191.5p after it bought a 29-strong property portfolio of freeholds of buildings it operates from, for £38m.
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