Oil costs drag the FTSE down with miners and banks sinking

MINERS dragged Britain’s top share index lower yesterday, as escalating violence in the Middle East and surging oil prices crimped investor appetite for risk.

The FTSE 100 index closed down 16.61 points, or 0.3 per cent, at 5,973.78, nearly 70 points below the session high as the index traded at 80 per cent of its average 90-day volume.

Crude oil prices were higher, with Brent above $116 (£71.62) a barrel, as fighting intensified in Libya, and with its resulting effect on inflation investors worried that the fragile global economic recovery could be derailed.

“The FTSE seems to be becoming more and more irrational and unpredictable as once again we see it recover from a negative start before giving up on all the hard work later in the session,” said Angus Campbell, head of sales at Capital Spreads.

“It’s hard to push on to new ground and maintain gains when the price of oil remains supported by the unrest in the oil producing nations.”

Base metal prices were down across the board as rising costs brought on by soaring oil prices weakened demand, with three-month copper on the London Metal Exchange down at $9,755.25 a tonne from Friday’s close.

Miner Antofagasta, which is due to report results this morning, fell 1.2 per cent.

Insurer Old Mutual and engineer Weir Group, both reporting during the next session, slipped 0.8 and 0.6 per cent, respectively.

With investors worried that the unrest in North Africa and the Middle East could affect larger producers, a number of brokers issued upbeat comment on the integrated oils sector, which they see benefitting long term from higher oil prices.

BP added 0.7 per cent and BG Group rose 0.3 per cent respectively, boosted as UBS and Citigroup said they saw surging oil prices as positive for the sector.

“The move in oil price drives an average nine per cent and eight per cent upgrade to our 2011 and 2012 earnings forecasts respectively [among European Integrated Oils],” Citigroup said in a note.

Elsewhere, HSBC outperformed a largely weaker banking sector, with traders citing technical reasons.

“Buyers entering the fray are seeing value at 655p,” said Atif Latif, director of trading at Guardian Stockbrokers.

“[This is] more of a technical play as the December low was near 652p and it had a large bounce from there to 730s.”

The row over reforming Britain’s banking sector is heating up as discussion of a drastic restructuring and increasingly assertive political rhetoric draw equally stern responses from the banks.

Part-nationalised Lloyds Banking Group shed 1.8 per cent. The Guardian reported the Liberal Democrats backbench Treasury Committee has backed a radical plan to distribute the government-owned shares in both Lloyds and Royal Bank of Scotland to the public.

Burberry rose 3.6 per cent as French peer LVMH launched a €3.7bn (£3.2bn) bid for Italy’s Bulgari, a premium of 60 per cent.

Intertek rose five per cent as the testing firm posted results and made an acquisition.

Satellite operator Inmarsat shed 13.4 per cent after results missed market expectations.