Market Report: Warning of slowing demand for oil in 2015 leaves energy explorers looking vulnerable

Are we poised to see some takeover action among oil producers?

As the price of black gold continues to fall, with the International Energy Association yesterday warning of slowing demand for oil next year, energy explorers that are highly leveraged are starting to look vulnerable.

Liberum said the current price of oil means the likes of Enquest, 0.15p better at 85.85p, Faroe Petroleum, off 0.5p at 93p, Petroceltic, 0.75p higher at 209.75p, Premier Oil, up 3.1p at 275p, and Tullow Oil, down 11p at 518.5p, should be starting to worry about debt levels. With producers under pressure, the “probability of M&A has increased”.

Still, the mood in the sector was grim yesterday, with oil majors suffering – BG Group slipped 15p to 1,025p, Royal Dutch Shell lost 13p to 2,256.5p and BP fell 5.3p to 426.65p.

One of the few oil and gas businesses on the rise was Afren, as the clouds overhanging the business began to clear. The investigation into unauthorised payments made to executives has concluded, with the dismissal of four top brass, including chief executive and chief operating officer. But while Afren, up 3.45p at 100.9p, is now rudderless, the Middle Eastern and African focused company said the balance sheet was unaffected and investors appreciate the closure.

The dip in Brent crude prices also buoyed guzzlers of the stuff, with British Airways-owner IAG up 15.5p to 339.6p, easyJet climbing 22p to 1,362p and cruise operator Carnival putting on 58p to 2,213p.

Despite oil heavyweights in the red, the Footsie managed a second day of gains, buoyed in late trading by good results from Johnson & Johnson and Citigroup on Wall Street. The FTSE 100 closed 26.44 points higher at 6,392.68.

One of the year’s most disappointing floats, AO World, bounded 12.3p to 166.3p on the mid-cap index after Shore Capital changed its tune on the business. Anglo Pacific Group, with makes a living off royalties from coal and metal mines in Australia, jumped 16.25p to 129p after revealing income from its main asset Kestrel is set to be “significantly higher” than expected in the first half of next year.