Royal Dutch Shell hit a four-month low on Wednesday after Citigroup said the oil company was still in denial about $50 oil.

Annual reports from the oil majors show an industry-wide belief that oil will stage a long-term recovery towards $80, which remains “the sweet-spot of their financial firepower”, Citi argued. But with the downturn three years old and US shale production increasing rapidly, those long-term expectations were at risk of a reset, it said.

Investors therefore should not use Shell’s 7 per cent dividend yield as a valuation measure, because the group is “rebalancing to lower oil by underinvesting in its future”, Citi argued. Shell’s upstream investment is equivalent to just 1.5 times its dividend cost, compared with a sector average of 3.2 times, it calculated.

Shell B was 2.7 per cent lower at £20.67, with the stock accounting for more than 16 points of the FTSE 100’s decline. The index closed at a session low, down 0.5 per cent or 33 points to 7,114.36, even as the pound drifted back from a six-month high.

Burberry led the FTSE fallers, down 7.8 per cent to £15.66, after reporting weaker than expected sales growth. The rest of the retailers extended their sterling-driven rally, with Next up 3.2 per cent to £43.21 and Argos owner J Sainsbury ahead 5 per cent to 267.4p.

But Sports Direct lost 1 per cent to 315.3p after Liberum cut the stock off its “buy” list as part of a sector review. The downgrade countered another retread of gossip that Mike Ashley, Sports Direct’s founder and 55 per cent shareholder, might take the retailer private — a rumour he has denied as recently as September.

“While we believe the market undervalues Sports Direct’s long-term potential, we acknowledge that the company faces severe foreign exchange headwinds and a likely difficult route to refocus the business from a value retailer to a full service, upmarket Selfridges of sportswear,” said Liberum. “A strong balance sheet supports value-creating buybacks and freehold investment, but sentiment will remain weak given the current downgrade cycle.”

EasyJet hit a seven-month high, up 5 per cent to £11.17, on expectations that sterling’s strength would help improve its pricing power and cut its costs in mainland Europe. Vague talk about potential corporate restructuring also helped the airline’s rally.

Royal Bank of Scotland took on 4.9 per cent to 235.7p after JPMorgan Cazenove upgraded to “neutral” following a meeting with management. Profit in the core business has stabilised, a rundown of non-core operations is nearing conclusion and legal risks look under control with the litigation reserve growing to around £11bn, it said.

Among the miners, Kaz Minerals rose 4.5 per cent to 456.5p after HSBC upgraded from “reduce” to “hold”.

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