The influence of the oil sector on the FTSE All Share was amply demonstrated in London on Thursday.
The sector accounts for around 20 per cent of the market although Dresdner Kleinwort Wasserstein pointed out that under the new FTSE sector classifications, that will fall to around 17 per cent next year.
But news of a rise in US oil stockpiles, combined with some porfolio reductions, was enough to knock the leading shares. Royal Dutch Shell B shares slipped 1.6 per cent to £18.43 while BHP Billiton fell 1.4 per cent to 878½p.
BP, 1 per cent softer at 624p, was also hit by news that China had reduced the amount of natural gas it will buy from the company’s Indonesian project.
Burren Energy lost 5.2 per cent to 913½p as UBS turned cooler on the stock. The broker downgraded the oil explorer to ‘neutral’ from ‘buy’ after recent share price outperformance.
The FTSE 100 closed down 25.8 points or 0.5 per cent at 5,495.3 while the FTSE 250 index gained 23.9 points or 0.3 per cent to 8,517.2.
Volume remained firm at 3.5bn shares as the market continued to unwind from some heavy portfolio trading last week.
There was some uncertainty ahead of Friday’s quadruple witching, when contracts for stock index futures, stock index options, stock options, and single stock futures expire simultaneously.
There was some talk that the hours before expiry, at 10:30 GMT could be a choppy as some dealers reported substantial numbers of put options left open.
But other major investment houses disagreed, saying the numbers were relatively low and the hours leading up to the expiry were likely to be quiet.
Property companies continued their strong run after backing from JP Morgan following the publication of the government’s draft proposals for real estate investment trust reforms.
The broker hiked its price targets across the board by an average of 10 per cent and re-iterated its overweight stance on the sector.
Land Securities Group added 3 per cent to £16.59, Hammerson gained 1.9 per cent to 999p and British Land was 2 per cent stronger at £10.23½p.
Vedanta, the Indian-based mining group, broke the 800p level for the first time, closing up 7 per cent at 835p, as backing from Morgan Stanley sent the shares to a new high. The broker set a target price of £11 for the shares as it felt the market was underestimating the higher long-run prices for zinc, copper and aluminium needed to cope with demand from China.
“Zinc and copper in particular are structurally undersupplied,” the broker commented as it raised its zinc price forecast by 23 per cent.
However, fellow miner Lonmin dipped 2.9 per cent to £15.92 as UBS placed 4.9m shares at £15.98p.
Heavy volumes were seen in Cable & Wireless, the telecoms group, on early talk that Telecom Italia was preparing a bid. While the group is seen as a probable takeover candidate, few could believe that Telecom Italia would be a bidder as it did not appear to fit its existing operations.
There were also doubts about whether it could afford C&W. The shares finished up 1.1 per cent at 118¾p as the story ran out of steam.
News that Cookson had sold its struggling laminates business to Texas Pacific Group, the private equity vehicle, for $91m kicked off speculation that the materials science group was being looked at as a potential takeover target.
But Oliver Wynne-James at Panmure Gordon said the group looked like a winning stock pick for 2006 now it has removed a major earnings obstacle. “Through this transaction, Cookson significantly improves its credibility,” he said. Cookson rose 5.5 per cent to 400p.
Drax Group, owner of the largest coal fire power station in Europe, became the latest company to float on the Stock Exchange. However, the shares dropped 2 per cent from the debut price of 500p.
Balfour Beatty, the support services group, said it was still interested in buying Mowlem in spite of Carillion’s increased cash-and-shares offer for the construction group.
Analysts at Bridgewell said any offer from Balfour higher than Carillion’s 220p a share final bid would start alarm bells ringing in the market about overpayment. But they noted that Balfour Beatty’s ability to make a full cash offer and its capacity to exploit greater cost synergies made a counter-bid still possible.
Shares in Mowlem were up 3.8 per cent at 220p, while Carillion fell 1.8 per cent to 295p and Balfour Beatty’s lost 0.1 per cet to 346½p.
Among the smaller companies, sportswear manufacturer Umbro closed 4.3 per cent higher at 151¼p after an eventful session. The company announced a four-year extension to 2014 of its kit supply deal with the England football team, a move which analysts at KBC Peel Hunt said gave Umbro a “significant advantage over other competing brands”.
Following the news, Umbro’s private equity backer, Doughty Hanson, announced it had placed 28m shares at 150p a share, reducing its holding from 33.2 per cent to 19 per cent.
D1 Oils rose 2.1 per cent to 220½p after the alternative energy group said it had decided not to proceed with talks with struggling rival Biofuels over a possible merger. D1 said it was unable to “value clearly” the underlying assets of Biofuels’ business. Biofuels fell 6.4 per cent to 87½p.
Television Corporation slid 10.3 per cent to 61p on news it had terminated talks with a third party which was considering making an all-cash offer for the company. The TV production company also advised shareholders to take no action regarding a £36.4m all-share offer tabled by Welsh programme maker Tinopolis on November 12. The news pushed shares in Tinopolis down 14 per cent to 40p.
Business information provider Datamonitor climbed 9.1 per cent to 243¾p. The company said profits this year and next would beat expectations as a result of strong service sales and an increase in subscriptions.
A deal with a subsidiary of Tyco, the US conglomerate, sent shares in Pursuit Dynamics 9.3 per cent higher to 199p. The fluid processing technology group said it had granted Tyco a licence to manufacture and market its Firemist fire suppression system.
Plant Health Care, the US agricultural company, rose 6.9 per cent to 62p following positive trials of its Myconate fertiliser.
Universal Salvage fell 7.1 per cent to 111½p. The vehicle salvage group issued a profit warning, saying Provident Financial’s decision to shut its Yes Car Credit vehicle financing division would hit earnings.
Mears Group slipped 0.5 per cent to 298p as Bob Holt, chairman and chief executive, sold 2.7m shares in the housing estate manager at 300p a share.
News that five directors, including the chairman, have bought shares in Allergy Therapeutics sent the pharmaceutical company 7.8 per cent higher to 82½p.
Engel East Europe rose 7.4 per cent to 116p on its first day of trading on Aim. The residential property developer raised £30m via a 108p a share placing through KBC Peel Hunt.