Interactive Investor

Must read: FTSE 100, oil prices and Shell

Our head of investment rounds up the morning's big news.

8th January 2024 08:48

by Victoria Scholar from interactive investor

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      GLOBAL MARKETS

      After a difficult week to kick off 2024, the FTSE 100 is extending losses this morning amid broader risk-off sentiment and weakness across European markets. Shell (LSE:SHEL) is trading at the bottom of the UK blue-chip index after it warned of weaker earnings from oil products and chemicals. 

      US futures are pointing lower after staging modest gains on Friday but still finishing the week in the red, snapping a nine-week winning streak, the longest since 2004. 

      Oil prices are under pressure today with Brent and WTI down by around 1% each after Saudi Arabia cut its selling prices. 

      US earnings season kicks off later this week with results from Wall Street heavyweights including JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp (NYSE:BAC). In the UK focus is on updates from supermarkets like Marks & Spencer Group (LSE:MKS), Sainsbury (J) (LSE:SBRY), and Tesco (LSE:TSCO).

      SHELL 

      Shell reported a mixed set of results. It expects quarterly integrated gas trading to be significantly higher than the third quarter thanks to seasonal factors and increased optimisation opportunities.

      However, investors are focusing on the fact that Shell warned that profits from trading oil products and chemicals would be lower resulting in a loss in that division. It is also facing an impairment charge of between $2.5 billion and $4.5 billion in the fourth quarter, relating to its Singapore refining and chemicals hub. Consequently, shares in Shell are trading sharply lower, underperforming the FTSE 100. 

      Shell has been facing some price target cuts from the analyst community so far this year including from Morgan Stanley and Bernstein ahead of today’s update. Over the last six months, shares in Shell are up by around 10% thanks to higher underlying oil prices since last summer and better-than-expected third quarter earnings.

      But strong supply in the United States and a sluggish demand outlook could keep a lid of oil price gains this year. However, offsetting this are OPEC+ supply cuts, possible interest rate cuts in 2024 and the potential for China’s economy to improve. 

      Shell is scheduled to report fourth-quarter earnings on 1 February.

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