Footsie Support from Oil Majors Fails amid Renewed Iran Tension

The premier UK index trended away from its peers on Thursday thanks to support from oil majors BP and Shell, but renewed Middle East tensions on Friday eventually swayed investors.

Standing Out With the Risks

Thursday saw a from other major equity markets, as the premier index managed to hold on to gains while global bourses trended lower. Expectations around the high-level negotiations between the US and China to seal a deal and lower tariffs supported the index. However, while both sides hailed progress after a meeting in London at the start of the week, the details of the deal seemed more like it was kicking the can down the road. That would have been enough to keep global markets in the red, but at the same time, reports emerged that the due to tensions with Iran.

The benefits of the FTSE 100's global exposure were evident on Thursday as it shrugged off another bit of negative news: than expected in April, posting -0.3% growth instead of the -0.1% forecast. Economists blamed the effects of the trade war and a change in stamp duty, which led to a sharp drop in home sales. Most domestic-facing sectors on the FTSE 100 were in the red, but the large weighting of the oil giants BP and Shell helped keep the index in the green. An additional factor that helped was the outlook for the Bank of England (BOE), which is widely expected to keep rates unchanged when it meets next week. However, markets increased bets that there would be 25 bps of easing at the August gathering.

Can Oil Keep Providing Buoyancy?

in the aftermath of what appeared to be an initial airstrike on Iranian nuclear facilities as well as top military leaders by Israel. About 20% of the world's , near the airstrike locations. Global stock markets tumbled in response, but the high price of oil prevented the FTSE from suffering the major losses that other indices did. Israeli Prime Minister Benjamin Netanyahu vowed to continue strikes against Iran, at least in the coming days, while Iran was preparing to declare war on Israel formally. Eventually, early Friday, striking nuclear and military facilities, which saw the UK's premier index giving back its weekly gains at the time of writing despite rising UK oil stocks.

Beyond geopolitics, a factor that could support the British oil sector is the strategic alternatives offered by BP. Reports suggest BP could be taken over or at least sell off large portions of its operations to companies like Shell or Chevron. The latest deal rumours are from the UAE's Adnoc, which is reportedly . However, the UK’s oil giants do not appear to support the index for now, despite trading much higher for the past two days.

BP Breaks Out of Range, But Can It Hold

Interestingly, BP recently broke out of a range-bound market contained within the VWAP zone of 350-380 GBX, leaving behind support at 363, which coincides with the ‘autotrend’ resistance. The RSI suggests short-term upside potential at 67, bringing into focus the 400 round resistance unless momentum wanes under the VWAP high at 382. In that case, BP could revisit the bottom of the range near 346 and the ‘autotrend’ low of 343, opening the door to the swing low of 330. However, if BP continues its ascent, the next resistance lies at 425, followed by 450 and the peak of 470.

Source: SpreadEx / BP

Key Takeaways

The FTSE 100 bucked the global trend on Thursday, supported by gains in oil majors BP and Shell amid heightened tensions between the US and Iran. However, it ultimately gave back its weekly gains on Friday following confirmed reports of Israeli airstrikes on Iranian nuclear and military facilities. Despite the geopolitical risks, speculation about BP acquisitions or asset sales provided some buoyancy for the UK oil sector. However, the upside potential may be limited if tensions escalate further and weigh on global stock markets and the FTSE 100 more.