Market Report: Oil titans feel heat from slump in crude prices

Blue chips suffered another day of sharp falls yesterday, spurred by a dire performance by the heavyweight oil sector.

Dealers blamed the continued retreat in the price of crude for the change in sentiment towards the industry which saw BP fall 14p to 620.5p, Royal Dutch Shell give up 30p to 1,860p, BG lose 9p to 505.5p and Cairn Energy drop 45p to 1,879p. These four stocks alone account for 20 per cent of the FTSE 100 so it was no surprise to see the index finish the day 55 points lower at 5,372.

Despite the sharp dip in oil-sector valuations, Merrill Lynch argued that the party is by no means over. It points out that the industry has outperformed the wider market by about 20 per cent in the year to date, and predicts this trend will continue for some time.

The US broker expects the forthcoming third-quarter earnings season to be another record one in terms of profits. This, Merrill suggests, should underline the sector's continuing strong earnings potential and the reality that profits in the fourth quarter are likely to be even better. However, David Buik, a key strategist at Cantor Index, the spread-betting firm, worries that investors are generally losing their ardour for equities.

He warned that if the rally staged by Wall Street in early trading yesterday runs out of steam, the market is likely to suffer another sell-off today.

Among the handful of gainers in the blue-chip index yesterday were BAA, up 2p to 626.5p, Vodafone, 0.25p higher at 151p, and GlaxoSmithKline, 2p stronger at 1,454p. The FTSE 250 also had a bad day, losing 109 points to close at 7,777.

Given the gloom, even reports that the Reuben brothers have been building a stake in Whitbread failed to lift shares in the leisure conglomerate, which lost 6p to 990.5p. The billionaire duo are also said to be amassing a minority stake in Rank, 3.5p lower at 299p yesterday.

Misys managed to buck the negative trend, gaining 2.5p to 204.5p in heavy volume. Dealers reported vague rumours of a bid for the software group which last month saw its share price decline after a profits warning. But analysts were sceptical that anyone would want to buy the whole group given the disparate nature of its various businesses. They suggest that if there is to be any corporate action at Misys, the sale of one of the group's divisions is more likely than a takeover of the whole company.

Speculation of a bid for London Stock Exchange intensified yesterday, driving its stock 8p higher to 578p. Macquarie Bank is said to be just days away from making a move on the Exchange, and there is a growing expectation that a bid from the Australian bank will prompt a counter offer from Deutsche Börse.

The German group has reserved the right to bid for the LSE in the event of an offer from the Paris-based Euronext or any third party. Last year, Deutsche Börse tabled a 530p-a-share bid for the London Exchange but it was rejected by Clara Furse, the chief executive of the LSE, as being too low. She is said to want at least 700p a share, or £1.8bn.

Lower down the pecking order, Regal Petroleum ticked a penny higher to 120p after the oil explorer said that the Ukrainian Ministry of Natural Resources had confirmed the validity of all Regal licences and permits in the former Soviet country.

Inmarsat, 6.75p lower at 304p, revealed that the hedge fund Lansdowne Partners had raised its stake in the company to 5.4 per cent from 4.3 per cent. Lansdowne is likely to have picked up the extra shares when the private-equity backers of the satellite operator sold down their stakes this week.

Clinton Cards lost 0.5p to 72p as it emerged that Fidelity Investments had sold 4.4 million shares, cutting its stake to 18.4 million, or 8.9 per cent. Meanwhile, Tweedy Browne, the US investment company, declared a maiden stake of 7.8 million shares, or 3.7 per cent. March Networks fell 15p to 835p as brokers struggled to clear a large seller from the market.

Parkwood ticked 1p higher to 60p after Tony Hewitt, the executive chairman of the support-services group, bought 72,000 shares at 62p and 28,000 at 59p. These purchases take Mr Hewitt's stake in Parkwood to 10.7 million, or 54.8 per cent. There was also director share-buying at Imagesound, off 0.37p to 10p. Derek Mapp, the executive chairman at the in-store music and TV services group, picked up 2 million shares at 9.75p, thereby raising his stake to a little more than 8 million, or 13.3 per cent.

Oxford BioMedica ticked 0.75p lower at 42.5p, despite news of positive Phase II trials results for the group's TroVax kidney cancer treatment. Oxford BioMedica said the trials showed that TroVax is safe and well-tolerated in patients suffering from the disease.