FTSE races ahead as oil price drops

A cooling in oil prices helped to boost flagging stock markets today, with London’s FTSE 100 Index ahead more than 1%.

Light, sweet crude on the New York Mercantile Exchange – the benchmark oil price – was trading at around $134 a barrel, well down from the $147 record recorded last week.

That spike shook investors around the world, which combined with further economic gloom such as soaring inflation, sparked several days of hefty losses for London’s blue-chip FTSE 100 Index.

But oil prices have dropped over the past two days amid expectations of slower demand in the US.

The Energy Information Administration said yesterday that US crude supplies rose by three million barrels last week, compared with the three million barrel reduction analysts had expected.

A rally for banking stocks, following better than expected results in New York, also contributed as London’s Footsie rose by almost 100 points. European exchanges in Frankfurt and Paris enjoyed similar rises but analysts said figures from Merrill Lynch later today would be crucial in determining further progress.

Oil still costs nearly 40% more than at the start of the year, with the rise driven by fears over global supplies.

There was a glimmer of hope for motorists yesterday as figures showed the rate of increase in petrol prices had slowed.

Average petrol and diesel prices rose by a more modest 1.5p a litre in the UK between mid-June and mid-July, the AA revealed, compared with 5p to 7p hikes endured by drivers during the period mid-May to mid-June.

The UK Chancellor also announced he was postponing a 2p rise in fuel duty scheduled for this October.

Drivers are still paying nearly a quarter more for their petrol compared to a year ago, and around 36% more for diesel.