Tight Crude Market Offers Potential for UK Renewables

Markets have shrugged off some of the latest geopolitical developments, with attention focused on UK renewable firms that are receiving mixed messages about their outlook.

Crude Struggles to Make Gains

The price of oil fell below $70/bbl on Monday and has since been trading sideways, despite several geopolitical events that might have generated more decisive price action. some of the effects of the increase in production from OPEC+ members. Analysts attribute the rise in demand to the northern hemisphere's hot weather and resilient industrial activity in China. Markets also shrugged off US President Donald Trump's on countries that continue to buy oil from Russia if a peace deal on Ukraine is not agreed within 50 days. That might be because nearly two months is a long time for the markets, with a lot happening between now and the deadline.

The price of crude could be affected by sitting in a . At WTI prices in the mid-$60s/bbl, returns on new shale oil drilling become less attractive. The US benchmark for oil has fallen by 8% since the start of the year, giving shale producers less motivation to increase production. The Baker Hughes rig count fell for the 11th consecutive week to the lowest level since the end of 2021. Slowing production puts a floor under crude, while the prospect of increased production from countries like Saudi Arabia provides a ceiling. This could leave crude range-bound around the current level.

UK Energy Stocks Get Good and Bad News

On Monday, major UK petroleum producer as it turned its focus away from renewables. However, it also disclosed that lower prices would result in an impairment of £591 million, with the timing of the switch towards fossil fuels potentially being somewhat awkward. UBS stated that of a policy change regarding the upcoming UK government offshore wind auction. The bank argues that the company could generate around £1.5 billion in equity from its Berwick Bank project as a result of the auction. SSE also received a letter, along with other wind producers, from the Reform Party (currently leading in the polls), warning that it would eliminate wind subsidies if it gained power.

Energy and utilities have the third-highest weighting in the UK’s benchmark index and have recently . The high cost of energy in the UK is a contributing factor to inflation, as well as to the bottom line of companies producing it. Stability in crude prices, along with a favourable outlook for renewables, could help support the UK's premier index as it hovers below its all-time high.

FTSE 100 Trending Towards New Record

The FTSE 100 has been on an upward trend since the start of the month and is just off the record high scored on Monday. The RSI has yet to reach overbought territory, suggesting the run higher could still have legs. A move above 9000 could meet resistance at the upper Bollinger Band at 9050, with the next resistance level at the 9095 ‘autotrend’ level. On the flip side, a turn towards a correction could encounter support at 8900 and the middle BB range at 8860, followed by the LBB at 8700.

Source: SpreadEx | UK 100, Daily

Key Takeaways

Solid results from energy firms have supported the FTSE 100's recent upward trend, as the price of crude is stabilising with tight supply offsetting increased production. BP's renewed focus on fossil fuels could capitalise on that price stability. Analysts are looking favourably at SSE in particular, as it is expected to be a significant beneficiary of the new rules for the next round of the government's wind energy auctions.