UK Votes for Nuclear, Shell Counts Cost of Russia Exit

Written by: Susannah Streeter | Hargreaves Lansdown

  • FTSE 100 opens down 0.3%
  • Brent crude up 1.2% at $102 a barrel.
  • BP down 1.8%
  • Shell down 1.4%

The UK has already committed to weaning itself off Russian oil and coal imports by the end of the year but its long term plans to increase energy security are in sharp focus today. Vain hopes that the new energy strategy being unveiled would throw a bill lifeline to struggling households or boost energy saving initiatives are being dashed.

Instead of help with short term financial pain, the government’s eye is trained on long term gain for the nuclear industry in particular. Rolls Royce is set to be one of the beneficiaries of plans to supercharge the UK’s energy grid with the next generation of plants. The engineering company has already been blessed with government grants to develop its small modular reactors, which are set to be part of the blueprint for the long term strategy and could be set up in less than a decade.  With the focus firmly trained on those opportunities shares rose initially in early trading, but then fell back. Its nuclear strategy has already been largely priced in by the market and the company’s core business of manufacturing and maintaining commercial jet engines still faces turbulence, with the war in Ukraine expected to dent confidence in the travelling public particularly for transatlantic travel. 

As renewables and nuclear take centre stage, while the oil price stays hovering around lower levels last seen in mid-March, energy giants BP and Shell opened more than 1% lower in early trade. Investors will be assessing their progress in renewable strategy as the companies also deal with the volatile oil price, and an expensive exit from Russia. Shell has now put an even higher figure of the costs of its write down of up to $5 billion in the first quarter, which appears to have unnerved investors again, with worries about the hit to the bottom line mounting. But despite the eye watering costs, the share price should continue to stay reasonably resilient given the divestment far outweighs the reputational damage which could be caused had it not pulled out.

The push and pull forces determining the oil price are hard at work again, with Brent crude inching higher again, reversing some of yesterday’s steep losses. The planned release of 60 million barrels of emergency stocks by big oil consuming nations, on top of the 180 million barrels set to be dripped in from US oil reserves, helped assuage supply worries. But it didn’t last for long. Russian troops are regrouping in Ukraine, with a fresh onslaught expected in the East and there is no breakthrough in sight for the stalled Iran talks, so worries about global supply show little sign of fading.

Overall a more downbeat sentiment is bogging down financial markets, with investors staying cautious as they mull the implications of the era of ultra cheap money coming more rapidly to an end.  The FTSE 100 dipped back, following falls in Asia and on Wall Street - the after effects of minutes released by the US Federal Reserve. They warned of a more rapid rollback of the mass monetary stimulus, depleting the £9 trillion balance sheet much more quickly, while rates are hiked simultaneously. The planned pincer movement is aimed at grasping runaway inflation and pulling it back down, given the warning lights flashing about just how hot prices have become.

There is expectation American consumers and businesses can withstand a rapid run of rate rises, but it depends just how high they might have to go, and there are worries that a nudge above 2.5% by the end of the year, could risk the US economy rapidly losing steam.

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