Brent reaches two-month high as British American Tobacco smokes FTSE 100

Brent crude oil prices rallied to their highest point in almost two months today amid otherwise limp UK markets.

Futures for September delivery of the North Sea benchmark traded above $52 per barrel in the late afternoon, while North American benchmark West Texas Intermediate (WTI) hovered 30 cents short of the $50 per barrel mark at the time of writing.

Oil prices have been boosted in recent days by a larger than expected drawdown in US crude oil stocks, which the US Energy Information Administration reported fell by more than seven million barrels last week, far beyond the two million consensus. Meanwhile Saudi Arabia on Monday announced it would limit exports in an effort to sustain prices.

Stock markets in London failed to be lifted by the rise in oil prices, however, with a 1.2 per cent share price rise for Royal Dutch Shell an outlier on an index mostly in the red.

London’s multinationals were not aided by a strong rise in sterling, which has sustained its highest level against the US dollar since late September in the past two days. Sterling traded as high as $1.3136 against the dollar before retreating at the time of writing.

That weighed on the FTSE 100 as a whole, which fell by more than one per cent. Only 13 of its constituents recorded a gain just before the close.

The biggest drag on the index was British American Tobacco, whose shares dived by as much as 10 per cent at points after the US regulator, the Food and Drug Administration, signalled its intention to cut nicotine in cigarettes to non-addictive levels, potentially causing a severe hit to BAT’s profits in one of its cash cow markets.

BAT has only recently completed its merger with former US rival Reynolds, increasing even further its exposure to the US market. The final fall of almost seven per cent in BAT shares weighed heavily on the FTSE, where it is currently the second largest company by market capitalisation.

Mike van Dulken, head of research at Accendo Markets, said: "It might not sound great, but it doesn’t read like the industry is destined to go up in smoke. Shares are already well off their worst levels."

European stock markets followed the FTSE down, with the Dax index tracking 30 German companies falling by 0.4 per cent. France’s Cac 40 index fell even further, losing more than one per cent.

Those falls were likely influenced by strong gains for the euro against the US dollar, which may have benefited from weaker than expected US wage growth driving down the greenback despite a strong rebound in the overall economy.

David Madden, market analyst at CMC Markets, said: “The strength of the euro is hindering eurozone equity benchmarks, and the market chatter that the European Central Bank will rein in their very aggressive bond buying scheme is also adding to their problems.”

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