FTSE 100 edges higher as oil price slump hits Asian shares

The FTSE 100 opened in positive territory despite an overnight slump in Asia-Pacific markets.

European shares opened lower before recovering. The FTSE rose 0.16pc to 5,982.81, led by Standard Life, which rose 3.3pc after reporting better-than- expected full-year profit.

The pan-European FTSEurofirst 300 was down 0.38pc at 1,289.03 points. In spite of the decline, the index was on course for its best week since January 2015.

Overnight Asia-Pacific stock markets fell as US crude oil dropped below $31 a barrel. Traders digested news that US stockpiles rose to their highest level in more than eight decades, reigniting concerns about demand and broader worries about the global economy.

Oil prices over the past 12 months

The US Energy Department reported a 2.1 million barrel increase in US commercial crude inventories yesterday, as well as sizeable increases in gasoline and other refined products.

A rise in inventories typically suggests soft demand in the world's biggest oil consumer and is bad news for a market wallowing in excess supply.

The price rally also fizzled out after Saudi Arabia foreign minister Adel al-Jubeir rejected any reduction in his country's crude output.

"If other producers want to limit or agree to a freeze in terms of additional production, that may have an impact on the market, but Saudi Arabia is not prepared to cut production," Mr Jubeir told AFP.

The benchmark Nikkei 225 index at the Tokyo Stock Exchange fell 1.4pc, and the broader Topix index of all first-section shares dropped 1.48pc.

Japanese and Chinese shares over three days

Elsewhere in Asia-Pacific, Hong Kong eased back 0.4pc while Sydney dropped 0.79pc, but Seoul rose 0.39pc.

In Shanghai stocks were broadly flat, slipping 0.10pc amid persistent worries over the flagging economy, dealers said.

While turbulence in Asian markets has abated this week with losses earlier in the year being partially won back, investors remain on alert over the global glut in crude and China's economic outlook.

"Sentiment on the oil market has been a key macro driver for stock-market sentiment recently," Ric Spooner, Sydney-based chief market analyst at CMC Markets, told Bloomberg News.

West Texas Intermediate slipped 0.8pc after rising in the past two days. Brent also fell 0.8pc.

"Inventories continue to build," Michael McCarthy, a chief strategist at CMC Markets in Sydney, said. "Not only is there downside risksto prices but there is also obvious limits to any upside potential."

Currency

Renewed weakeness in the price of oil dampened sentiment and safe haven assets, such as the yen received a boost.

The Japanese currency strengthened, as the dollar slipped to 113.13 yen from 113.24 yen yesterday.

"The stronger yen will be a burden on Japanese markets," Hideyuki Ishiguro, a senior strategist at Okasan Securities, told Bloomberg News.

"Investors are concerned at the downside of earnings, especially for exporters, which may weigh down the markets.

"We're not in a place where we can buy. The yen may strengthen further versus the dollar."

The currency has climbed almost 5pc since the Bank of Japan surprised traders by imposing negative interest rates last month.

Oil

Oil is global oversupply

Mr McCarthy said more market volatility can be expected because of the ongoing oversupply of oil.

"I don't think anybody seriously believes that anything useful is going to come out of these discussions between Opec and Russia," he said.

Saudi Arabia and Russia had raised hopes of an imminent deal to cap oil output at January's record highs if they gained the assent of Iran and Iraq following a meeting in Doha on Tuesday.

Opec producers have refused to reduce output in an attempt to drive less competitive players, in particular US shale oil producers, out of the market. The supply glut will increase as Iran begins to pump oil into the market now that sanctions have been lifted.