CT: Oil surges and FTSE decline as Gaddafi digs in
Oil prices skyrocketed and Britain’s benchmark stock index dropped on Tuesday, as Libya's president, Muammar Gaddafi, dismissed reports that he had fled and Libyan war planes were said to have fired on protestors.
The price of West Texas Intermediate oil (for March delivery) shot up 9.35% to $94.26 a barrel, a 29-month high, and the price of Brent crude oil (for April delivery) gained 1.77% to $107.64.
Amid fears over further disruption both in Libya and elsewhere in North Africa and the Middle East - the world's top oil producing region - the International Energy Agency’s chief economist, Fatih Birol, warned that high oil prices posed a danger for global economic growth.
But he added that industrialised countries stood ready to release oil from stockpiles to meet any Middle East supply disruptions.
Hundreds of people are said to have been killed in the Libyan regime’s crackdown on the protests to end Gaddafi’s 40-year rule. The Libyan strongman's statement, on state TV, came after security forces and protesters clashed in the capital for a second night.
By 10:10 am, the FTSE 100 index of blue-chip shares fell 1.24%, or 75 points, to 5,940 as it extended its recent decline; the Mid-250 index slipped 1.25%, or 147 points, to 11,581. The losses followed falls in Asian markets on the turmoil in Libya and after Moody’s warned it may cut Japan’s credit rating.
‘Given the fact that we have seen massive gains in stock markets over the last few months investors have been nervous about a possible correction for some time now,’ said Michael Hewson, analyst at CMC Markets. ‘The tensions in the Middle East with Libya imploding and concerns that the unrest could spread to Saudi Arabia could provide just such a catalyst for a correction.’
Sterling dropped 0.46% against the dollar, to $1.615, but strengthened 0.3% against the euro, to €1.189. Gold prices climbed to $1,398 an ounce.
Meanwhile, official data showed that Britain’s public sector posted a bigger than expected seasonal surplus in net borrowing in January, following strong annual growth in income tax receipts.
‘Though overall revenues have picked up thanks to the boost from the higher rate of VAT, the government still has a long way to go in terms of reining in its expenditure,’ noted Hetal Mehta, economist at Daiwa Capital Markets. ‘Nevertheless, on this trend, we expect borrowing will reach around £140bn in 2010-11 as a whole, so undershooting the £149bn deficit projection set out in the Office for Budget Responsibility's latest forecast.’
BAE Systems was the biggest loser on the FTSE 100, dropping 16p to £3.26, amid fears that more UK defence contracts will be ditched as the government tries to cut military spending further.
Airline group IAG was another big faller, sliding 7p to £2.32, as was Serco Group, which dropped 19p to £5.26. African Barrick Gold was the biggest gainer, climbing 3p to £5.69.
