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FTSE100 edging closer to 7,000

Panic over? Oil price up 20% in four days, though volatility remains

petrol 2Markets remained cautiously optimistic despite oil prices slipping slightly early today, bringing a halt to a recent rally which has suggested the slump may have hit the bottom of the cycle.

The price is up by almost 20% in the past four days, with Brent Crude trading at $57.4 a barrel this morning, well up on its low of $45.2. Markets are now watching to see if the oil price resumes its recovery.

“If oil prices don’t spend too long sub-$50 per barrel in the first quarter and the oil majors were able to weather the storm in the fourth quarter, it raises hopes that the worst for blue chip oil companies could be behind them,” said CMC Markets analyst Jasper Lawler.

A recovery in the price is giving a boost to stock markets. The FTSE100 closed last night up 89.25 or 1.32% at 6,871.8 and could surge through 7,000 for the first time ever before the General Election.

This is its best close since 4 September when it settled at 6,878 and easing concerns about Greece have also encouraged investor sentiment. The new government in Athens has proposed swapping its outstanding debt for new growth-linked bonds, backing down from earlier calls for a complete write-off of its debt. Finance minister Yanis Varoufakis labelled it “smart debt engineering”.

While the plan was knocked back by the European Central Bank, the proposals were welcomed by markets worldwide, with shares in Athens up by more than 11%.

“For the first time it looks as if the new Greek government is reacting, rather than driving events. A switch to a more conciliatory tone on the part of the finance minister and the prime minister has raised hopes that a deal may be possible,” said analyst Chris Beauchamp from IG.

Oil prices are off by about 60% since last summer, prompting oil majors to cut back on investment plans and shed jobs. BP was among the latest to announce a reduction in capital expenditure after profits fell.

But new worries over the global economy, particularly some softening of factory orders in the US, and continued high stocks of oil has seen the price clipped today. China remains a focus for the direction of oil prices and any weakness sees an immediate reaction.

The fall in the price is not all bad news as it is also helping economic growth by lowering the costs of production and distribution.

 

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