Shell, the fourth-largest stock in London by market capitalisation, warned today that fourth-quarter profits will be “significantly lower” than recent levels as the company had to deal with tough market conditions in downstream, higher exploration expenses and lower upstream volumes.

Market Strategist Ishaq Siddiqi from ETX Capital said this was “worrying news from the oil major which is clearly suffering from management’s inability to get on top of concerns regarding capital discipline.”

He added: “Shell is not an isolated case, however, as weak industry conditions for downstream oil is likely to hit sector peers too.”

The FTSE 100 was 0.1% higher at 6,822.56 this morning, but has traded broadly sideways since hitting an eight-month high on Wednesday.

Economic data in focus

UK retail sales are due out this morning and are expected to show a 0.3% improvement month-on-month (excluding fuel) in December, with growth easing slightly from the 0.4% increase in November.

Annual growth is estimated to have picked up to 3.2% from 2.3% the month before.

Later on, the University of Michigan’s flash reading of its US consumer sentiment index for January is likely to rise to 83.5 from 82.5 in December, according to the consensus forecast.

US building permits and housing starts figures for December will also be closely watched this afternoon, along with industrial production data Stateside.

Shell issues profit warning

Shell was a heavy faller this morning after saying that fourth-quarter earnings excluding one-offs are expected to be just $2.9bn, down from $4.5bn in the third quarter and $7.3bn in the fourth quarter the year before. Market expectations were for a profit of around $4bn.

The company said that Upstream earnings were hit by higher exploration expenses and lower volumes in the fourth quarter, as well as the weakening of the Australian dollar.

Sector peers BP and BG Group were also under the weather today.

Product testing firm Intertek was in the red for a second straight day after Credit Suisse lowered its rating on the stock to ‘neutral’ and cut its target price from 3,500p to 3,200p. Intertek was hit by a downgrade by Berenberg yesterday to ‘hold’.

Drinks group Diageo was also lower after JPMorgan Cazenove lowered the shares to ‘neutral’. In contrast, Nomura has lifted its rating on oilfield services firm Petrofac to ‘buy’, giving the stock a lift this morning.

Insurer Aviva gained after signing a joint venture agreement with Astra International, Indonesia’s largest publicly listed company, to form Astra Aviva Life, which will sell and distribute life insurance products in Indonesia.

Investors at pharmaceutical group Shire seemed pleased with the company’s decision to sell off its loss-making Dermagraft skin treatment assets to US-based Organogenesis Inc, even if it means taking a loss on disposal and one-off impairment charge of $650m.

FTSE 100 – Risers
Admiral Group (ADM) 1,360.00p +2.56%
Glencore Xstrata (GLEN) 335.55p +2.55%
Johnson Matthey (JMAT) 3,397.00p +1.86%
Sainsbury (J) (SBRY) 367.70p +1.83%
Rio Tinto (RIO) 3,387.50p +1.59%
Petrofac Ltd. (PFC) 1,270.00p +1.52%
Marks & Spencer Group (MKS) 485.00p +1.46%
Reckitt Benckiser Group (RB.) 4,714.00p +1.42%
Resolution Ltd. (RSL) 358.00p +1.33%
BHP Billiton (BLT) 1,883.00p +1.24%

FTSE 100 – Fallers
Royal Dutch Shell ‘B’ (RDSB) 2,233.00p -3.17%
Royal Dutch Shell ‘A’ (RDSA) 2,126.50p -3.12%
William Hill (WMH) 362.70p -2.68%
BP (BP.) 482.55p -1.41%
Royal Bank of Scotland Group (RBS) 366.30p -1.40%
Aberdeen Asset Management (ADN) 445.40p -1.24%
ITV (ITV) 204.70p -1.16%
BG Group (BG.) 1,340.00p -0.85%
Lloyds Banking Group (LLOY) 83.45p -0.77%
International Consolidated Airlines Group SA (CDI) (IAG) 431.10p -0.55%

Source: ShareCast