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Oil Price Weakness Weighs on the FTSE 100 Index

FTSE 100
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November 29, 2016 By: , No Comments

The UK premier index, the FTSE 100 closed the day on Monday, 28 November at 6,799.47. The index was down 0.60% or 41.28 points. It is interesting to point out that the FTSE 100 index has been trading beneath the 15-day moving average and the 25-day moving average since 25 October 2016. The index broke sharply above these moving averages halfway through September, and remained above those levels through the 17 October. The downturn in the FTSE 100 index of late has been a direct consequence of a strengthening USD, and a resurgent GBP among others.

 

The Brexit issue remains a source of contention for the UK economy. That the UK High Court requires Prime Minister Theresa May to put the Brexit issue before Parliament is a major hurdle to overcome. That news allowed the GBP to rally well above its 31-year low against the greenback, and in turn reversed the direction of the FTSE 100 index. The FTSE 100 index has been catching up to the 15-day SMA and the 25-day EMA figures of late, and is now neck and neck with the 25-day EMA.

 

 

Crude oil prices resulting in sharp sell-off for FTSE 100 index

Wall Street indices and European indices across the board faced a tough day of trading on Monday. Energy shares have been driving indices lower, as the oil price continues its decline. Other concerns that are impacting the FTSE 100 index include the financial sector, as investors are troubled by the future prospects of Italian banks. For the year-to-date, the FTSE 100 index remains a power player. It is up approximately 8%, and the 1-year change is +6.66%.

 

This appreciation comes as somewhat of a surprise to those predicting the collapse of the financial sector in the UK, post-Brexit. WTI crude oil is trading at $46.13 per barrel on the NYMEX and Brent crude oil is trading at $47.29 per barrel on the ICE. A volatile day of trading in oil markets saw the oil price whipsawing between lows and highs as OPEC producers and Russia hope to thrash out an agreement on Wednesday, November 30, 2016.

 

 

Behind-The-Scenes: Intensive Discussions among OPEC Members

The big concern for traders is that oil prices could drop to $30 – $40 per barrel if OPEC fails to reach consensus on production cuts. Positive news comes in the form of possible production caps from Iran and Iraq. These are the second and third-largest oil producers in OPEC, but their commitment to the cause remains uncertain. Russia and Iran have been hard at work trying to reach consensus on how to reduce output to stabilise prices. Nonetheless, by the close of trade on Monday, the UK stock market ended lower as the UK oil and gas index plunged 1.7%.

 

Analysts remain bullish about a Donald Trump presidency, and strong momentum is driving positive sentiment across the Atlantic. Major UK and European companies including Tullow Oil, Royal Dutch Shell and British Petroleum fell between 1.4% and 2.3% on the day. There has also been a sharp sell-off in European banking stocks, as fears of an Italian banking collapse are running rampant. On the plus side, gold mining stocks rose 1% + after plunging to a 9.5-month low on the back of dollar weakness.

 

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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