FTSE 100 closes lower as Iran war sends price of oil rocketing

Stock prices in London closed in the red on Wednesday, as markets wait for the US rate decision and after the Iran war’s latest developments sent the price of oil rocketing amid fears of a “supply crisis”.

Brent oil was quoted at 108.21 dollars a barrel at the time of the London equities close on Wednesday, up from 101.95 late on Tuesday. Although below the conflict’s peak of 119.25, this remains well above the 73.08 level recorded on February 27, before tensions escalated.

The latest spike follows US-Israeli strikes that hit Iranian facilities at a major Gulf gas asset, the South Pars/North Dome mega-field, which supplies around 70% of Iran’s domestic natural gas and is the world’s largest known gas reserve.

“If you thought it would be plain sailing into the FOMC meeting later this evening, think again,” remarked XTB’s Kathleen Brooks.

“Markets are back in panic mode. The Brent crude oil price is surging and is higher by another 5% today, the gold price is down 2.8% and is below 5,000 dollars per ounce, bonds are getting sold off and yields are surging and the dollar is rallying.”

She continued: “Iran has warned Gulf nations that their energy assets and infrastructure are now legitimate targets…The risk is that an oil shipping crisis is morphing into an oil supply crisis.

“Unsurprisingly, this has spooked a market that was wiling to grasp hopeful signs that tankers were slowly getting through the Strait of Hormuz, and that countries like Saudi Arabia and Iraq could get oil into the market through alternative routes.”

In London, BP was up 0.7%, while Shell lost 0.4%.

Gold was quoted lower at 4,875.60 dollars an ounce against 4,994.57 on Tuesday.

Back in London, gold miners suffered, with Endeavour down 3.9%, Fresnillo down 3.5%, and Antofagasta down 3.0%.

The wider FTSE 100 index closed down 98.31 points, 0.9%, at 10,305.29. The FTSE 250 ended down 95.36 points, 0.4%, at 22,080.77, and the AIM all-share closed down 6.93 points, 0.9%, at 753.21.

Travel stocks rose despite the ongoing conflict, with easyJet up 1.5% and British Airways parent International Consolidated Airlines up 1.5%.

Defence stocks climbed. Babcock rose 2.1%, Melrose 1.1% and Rolls-Royce 0.7%.

The pound was quoted lower at 1.3334 dollars at the time of the London equities close on Wednesday, compared to 1.3345 on Tuesday. Against the euro, sterling stood at 1.1577, similar to 1.1576 a day prior.

Stocks in New York were lower. The Dow Jones Industrial Average was down 0.8%, the S&P 500 index down 0.5%, and the Nasdaq Composite down 0.5%.

The yield on the US 10-year Treasury was quoted at 4.22%, widening from 4.20%. The yield on the US 30-year Treasury was quoted at 4.86%, widening from 4.85%.

US President Donald Trump angrily wrote on his Truth Social site that he could leave US allies to secure the Hormuz strait on their own since they have refused to fight alongside US forces against Iran in the crucial shipping lane.

“I wonder what would happen if we ‘finished off’ what’s left of the Iranian Terror State, and let the Countries that use it, we don’t, be responsible for the so called ‘Strait?’ That would get some of our non-responsive ‘Allies’ in gear, and fast!!! President DJT,” he wrote.

Also, US producer prices rose more than expected in February, with gains driven by higher goods and services costs, according to data released by the Bureau of Labour Statistics.

The producer price index for final demand increased 0.7% month-on-month in February, after rises of 0.5% in January and 0.4% in December. The reading came above the FXStreet-cited consensus of a 0.3% increase.

On an annual basis, producer prices were up 3.4%, accelerating from 2.9% in February and beating FXStreet consensus of another 2.9% increase.

“This data has cast doubt on a Fed rate cut for this year,” XTB’s Ms Brooks said. “There is now just less than one cut priced in, with US interest rates expected to end the year at 3.43%.

“The market is currently expecting the Fed to prioritise inflation risks over growth, especially since the US is more insulated from the full effects of a spike due to its position as the world’s largest energy producer…The Fed is in focus today, but it has no bearing on this conflict.

“The Fed must react to the situation it finds itself in and today has been a clear sign that this conflict is definitely not over.”

In European equities on Wednesday, the CAC 40 in Paris closed down 0.1%, while the DAX 40 in Frankfurt ended down 0.9%.

The biggest risers on the FTSE 100 were Diploma, up 903.5p at 5,933.5p, Burberry, up 24.7p at 1,071.7p, Barclays, up 8.7p at 402.4p, Weir, up 60.7p at 2,922.7p, and Babcock, up 28.0p at 1,394.0p.

The biggest fallers on the FTSE 100 were Metlen Energy, down 1.6p at 35.7p, Fresnillo, down 126.0p at 3,322.0p, British American Tobacco, down 162.0p at 4,382.0p, Endeavour Mining, down 158.0p at 4,406.0p, and Unilever, down 167.5p at 4,712.5p.

Contributed by Alliance News.