Market Report: BP slides on oil price weakness concerns

Investors banked profits in BP last night, sending the stock sliding to 523.75p, down 5.55 per cent, or 30.75p, amid concern about the impact of the recent crude price weakness on the oil group's profits.

The worries came to the fore following rumours – later proved erroneous – that the company was guiding analysts to lower their expectations.

"BP is not guiding," said one senior analyst. "Instead, people are returning from the Christmas break and looking at the company's latest trading conditions update [which is posted regularly on its website]. From that, it's clear that profit will be hit because after averaging at around $115 per barrel in the third quarter, [the price of] Brent [crude] averaged around $55 in the fourth quarter."

Characterising the share price movement as a delayed reaction, the analyst added that the impact was not limited to BP. "It affects other oil companies as well, but BP seems to have been singled out because of its recent update," said the analyst. "There is nothing wrong with BP in particular."

BP ended as the weakest stock among the integrated oil & gas majors, with BG losing 4.66 per cent, or 49p, to 1002p and Royal Dutch Shell easing to 1736p, down 4.25 per cent, or 77p.

Overall, the FTSE 100 was down 131.41 points at 4,507.51 while the FTSE 250 fell to 6,762.3, down 116.71 points. Sentiment sank in the final hours of trading as investors digested a report by the payrolls firm ADP, which said private employers in the United States shed about 693, 000 jobs in December, beating market expectations of about 473,000. The jobs report reignited concerns about the global slowdown, and its impact on the demand for commodities. The fears prompted some selling in the mining sector, with BHP Billiton sliding to 1334p, down 8 per cent, or 116p, and Anglo American losing 5.84 per cent, or 107p, to 1725p.

Utilities, including National Grid, down 6.26 per cent, or 44.5p, at 666.5p, were on the back foot after Scottish & Southern Energy, down 8.23 per cent, or 104p, at 1159p, unveiled an equity issue, raising £479m by placing 42 million shares at 1,140p apiece.

Elsewhere, vague rumours suggested that ICAP was mulling a bid for MF Global, the New York-listed broker. Although ICAP's stock eased in response, shedding 3.27 per cent, or 11p, to 325.5p, market sources played down the speculation.

Man, the London-based hedge fund group, lost 9.41 per cent, or 27p, to 260p after UBS moved the stock to "sell", citing the risk of further de-leveraging. Lowering estimates, the broker advised caution ahead of the company's upcoming trading statement on 14 January.

"In our base case, we have assumed that Man de-gears its MGS structures product by another $3.5bn, and de-risks Man IP220 by 25 per cent, or $3bn," UBS said. "As a result, our 12-month target price has fallen 17 per cent to 260p (from 315p)."

Imperial Tobacco was unsettled, losing 1.41 per cent, or 26p, to 1820p. Citigroup, which lifted its earnings estimates for the group, said the stock "already reflects" the benefits Imperial may accrue from the recent weakness of the pound against other currencies, especially the euro. "Imperial now earns 55 per cent of its profit in euro or euro-linked currencies versus only 20 per cent in sterling," the broker said.

On the upside, the private equity group 3i advanced to 362.5p, up 5.92 per cent, or 20.25p. As on the day before, traders attributed the gains to a short squeeze, which was said to have been caused by another round of bargain-hunting. Investors were said to be moving in to capitalise on the stock's underperformance in the past month.

Also on the upside, HBOS climbed to 72.7p, up 5.52 per cent, or 3.8p, as its proposed merger with Lloyds TSB nears completion. HBOS was helped on its way by rumours that the Financial Services Authority, the UK market regulator, was mulling a revision of its decision to the lift the ban on short selling in financial stocks. The rally helped reduce the stock's discount to Lloyds' bid of 0.605 Lloyds share per HBOS share.

On the FTSE 250, housing issues were mixed. Berkeley, down 7p at 875p, and Bovis Homes, down 4.25p at 435p, fell after the Royal Bank of Scotland downgraded them to "sell" in a new sector review. "We expect continued significant trading weakness in 2009, with further house price falls impacting asset values and cash margins," the broker said,

"Poor mortgage lending conditions, deposit requirement and underlying volume flows look set to stay restricted, while demand is likely to be hit by increasingly weak economic conditions and the fear/reality of rising unemployment," it added.

Persimmon – also rated a "sell" at RBS – shrugged off the note, gaining 5,87 per cent, or 15.5p, at 279.75p.