By Jack Denton
Crude prices began Tuesday trading at multi-year highs after the OPEC+ group postponed a decision on output increases, but oil failed to hold on to its gains, causing a sudden rise and fall in oil stocks.
Shares in Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA +3.63% rose as much as 2% before settling 2% lower in London trading. Fellow major oil company BP’s /zigman2/quotes/202286639/delayed UK:BP +1.68% stock opened higher and rose as much as 1.3% before paring gains and turning 1.5% into the red, matching declines on the blue-chip FTSE 100 index.
Crude prices were trading around their highest levels since October 2018, after the OPEC+ group of oil-producing countries postponed a decision on whether or not to increase output. International benchmark Brent was trading at above $77 a barrel at the beginning of the day but fell back below$75.
“Combined with the rising oil demand driven by easing travel restrictions, the impasse in discussions and inability to find an agreement on increasing supply will provide further support to oil prices to the clear benefit of oil producing nations,” said Jamie Maddock, an analyst at Quilter Cheviot.
“Crucially, it could also provide a challenge to the consensus view that global inflation is simply transitory,” Maddock added. “But for the time being, the oil majors are reaping the benefits, enabling rapid debt paydown and comfortably funding old and new energy investment,” he said.
Shell stock added some buoyancy to the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.12% , the index of London’s top stocks by market capitalization, which was down 0.9%, though the index remains near its highs since the beginning of the COVID-19 pandemic.
“The FTSE is outperforming its European peers as heavyweight oil majors lend their support,” said Sophie Griffiths, an analyst at Oanda.
“COVID headlines are also underpinning the U.K. index,” noted Griffiths, after Prime Minister Boris Johnson confirmed on Monday that the end to final COVID-19 restrictions would come on July 19.
“The more domestically-focused FTSE 250 /zigman2/quotes/210598417/delayed UK:MCX +0.90% hit an all-time high in the previous session on reopening optimism,” Griffiths added.
Airline stocks, which are sensitive to COVID-19 developments, also got an initial boost as Germany lifted the most severe travel restrictions on visitors from the U.K. and four other countries. Shares in International Airlines Group /zigman2/quotes/208070069/delayed UK:IAG +3.08% — which owns British Airways — as well as easyJet /zigman2/quotes/202825892/delayed UK:EZJ +0.18% lifted off, before diving back down to earth and closing in the red..
Ocado /zigman2/quotes/207225647/delayed UK:OCDO +2.72% stock rose more than 2% before paring gains to fall near 4%, after the grocery-delivery company and robotics-logistics group reported half-year revenue and earnings ahead of analysts’ expectations. A key rival to online retailer Amazon /zigman2/quotes/210331248/composite AMZN -0.36% in the British online grocery market, Ocado is also the high-tech logistics partner of U.S. retailer Kroger /zigman2/quotes/206215053/composite KR +0.10% .
Shares in Morrisons /zigman2/quotes/205533138/delayed UK:MRW +0.31% , one of the U.K.’s largest supermarket groups and Amazon’s grocery-delivery partner in the U.K., fell 0.5% after the stock was downgraded from outperform to neutral by Credit Suisse. Despite the downgrade, the Swiss bank increased its target price on the shares from 216 pence ($3) to 254 pence, noting the potential for a bidding war as private equity groups circle the company .