Big oil back in the driving seat

WITH the Americans celebrating Independence Day by consuming even more petrol - by driving to barbecues and firework displays - it's only fitting that oil prices returned to the spotlight yesterday.

Brent crude jumped 68 cents to $36.6 a barrel, following weekend attacks on Iraqi pipelines. Fears that Russian oil giant Yukos is on the verge of collapse also fuelled buying. Oil traders were further spooked by weekend reports hinting that Opec may abandon plans to raise production. In early June, ministers agreed to lift output 8.5% on 1 July.

But over the past several days, oil ministers from Iran and Saudi Arabia - the cartel's two biggest producers - have expressed satisfaction with the current level of prices.

Not surprisingly, rising crude prices lit a fire under the oil majors. BP stretched 1 1/2p to 482 1/2p, despite Lehman's reduction of earnings estimates for the next two years. The investment bank is concerned about BP's low organic growth. Shell hardened 1 1/4p to 402p.

The oil explorers turned in an even sparkier performance. Burren Energy (up 34p to 379p) led second liners on hopes of good news from initial exploration of a well in Congo. Dealers warned that the scarcity of Burren shares may have exaggerated the rise - more than 95% of equity is held by institutions and directors.

Cairn Energy (up 26p to 1446p) was in demand following last week's announcement of a £100m share placing. The proceeds will go toward exploration in Rajasthan, India. Teather & Greenwood applauded the move, which will add liquidity to a recently popular sector of the market. Teathers lifted its price target by 28% to 1475p and repeated its buy advice.

Good news from Premier Oil (up 4p to 593p), which is poised to enter its busiest-ever drilling period, according to chief executive Charles Jamieson. Premier is about to break ground on a project in Mauritania and is also exploring in Gabon, Pakistan, Egypt and Indonesia.

Tullow Oil (up 3/4p to 124 1/4p) unveiled a contract to jointly develop a gas field in Namibia. Oil industry services provider Wood Group bounced 3 1/4p to 116 3/4p after touching an all-time low of 114p following last week's profit warning.

Demonstrating little independence from the US markets, local trading was subdued on the American holiday. The Footsie drifted in a slim 20-point range, finishing 4.1 points weaker at 4403.3, the lowest point of the day.

Sterling was unchanged at $1.83. The euro weakened to 67.1p but strengthened against the dollar to $1.2280.

Supermarket group Wm Morrison continued to reel after last week's shock profit warning, retreating another 8 1/2p to 191 1/2p, the worst performance on the big board. A range of investment banks cut price targets, but none have recommended selling. UBS repeated its buy advice, while CSFB believes Morrison will outperform the market. Deutsche Bank sliced its price target by a massive 85p to 195p but retained its 'hold' rating. The German bank believes the acquisition of Safeway will ultimately come good in terms of increased profits and margins.

The sector's other victim, J Sainsbury, failed to hold an early 8p gain, finishing 2 1/2p lower at 271p. Early buying was spurred by hopes that billionaire Philip Green could turn his attention to the ailing supermarket group if his bid for Marks & Spencer (up 2 1/4p to 359 1/2p) implodes. Market leader Tesco was the only supermarket to make any real progress yesterday, stretching 1 1/2p to 260p.

Going the other way, rave reviews from CSFB helped ITV (up 1 1/4p to 113 1/2p) top the ratings. CSFB lifted its 2004 earnings forecast by 13% following a favourable Ofcom decision last week. The regulator will allow ITV to renegotiate the terms of its 11 regional licences. Analysts believe that could save £30m a year.

Specialist publisher Future Network jumped 3 3/4p to 64 1/4p after extending its contract to produce Xbox Magazine for Microsoft until 2011. FN also revealed an 8% rise in group revenue over the five months ending in June.