Markets Plummet While Oil Prices Swing Wildly : Business: The Dow, up 42 points in early trading, ends up losing 39. Bond prices drop; the dollar is off.
Oil prices swung wildly and stocks and bonds plummeted Wednesday as the failure of the U.S.-Iraqi meeting on the Persian Gulf crisis sent a shudder through world markets.
The price of crude oil for February delivery, which had slipped nearly $4 a barrel in early trading, jumped $7.65 to $31 in New York within minutes after Secretary of State James A. Baker III announced that he had made no progress toward peace in his meeting with Iraqi Foreign Minister Tarik Aziz. Later, prices for the sweet light crude eased, ending the day up only 9 cents a barrel, at $27.26.
In the stock market, the Dow Jones industrial average dived on Baker’s words, falling from 42 points above Tuesday’s close to 43 points below it. The index ended the day off 39.11 at 2,470.30, marking the sixth consecutive money-losing session for the war-worried market.
“I can’t remember a day this volatile,” said Jay Goldinger of Capital Insight, a brokerage in Beverly Hills. “I noticed that Baker wasn’t smiling when he walked in (to a televised press conference) and I sold. . . . It was the only winning trade I’ve had all day.”
A number of traders said they believe the market’s consensus now is that there will be an outbreak of war. But many cautioned that sentiment has oscillated in both directions over the past few days.
Some analysts predicted that the markets are likely to be just as volatile--or more so--with the approach of Jan. 15, the U.N.-imposed deadline for Iraq’s withdrawal from Kuwait.
In other markets:
* The benchmark 30-year U.S. Treasury bond lost ground. The bond’s price fell $6.88 per $1,000 of face value, as the yield rose to 8.45% from 8.38% Tuesday.
* The U.S. dollar fell against most currencies in the morning, rebounded in the afternoon, then closed down. The greenback closed at 1.5370 German marks, down from Tuesday’s New York close of 1.5415. The dollar was up against the yen, closing at 136.80 yen versus Tuesday’s 136.50.
* Gold prices jumped after Baker’s remarks but closed the day up only 60 to 90 cents. Gold for February delivery was quoted at $393 an ounce in late New York trading.
Traders in a number of markets had read bullish interpretations into the meeting of Aziz and Baker as the session dragged on. “I think just the fact that two people sat down face to face was seen as bullish,” said Chris Pedersen of Twenty First Securities in New York.
Crude oil, which has been priced as high as $41 a barrel since the August invasion of Kuwait, slumped to $23.50 in the course of the morning.
But the turnaround came at about 11 a.m. PST, when Baker appeared before a press conference at a Geneva hotel and said: “Regrettably . . . I have heard nothing that suggested to me any Iraqi flexibility whatsoever.”
As soon as Baker uttered the word “regrettably,” traders in all markets kicked in an avalanche of orders.
“He hadn’t finished his sentence, and you could see futures prices starting to tick down,” said Edward Nicoski, market analyst with Piper, Jaffray & Hopwood brokerage in Minneapolis.
At the New York Mercantile Exchange’s crude oil trading pit, “it was a vacuum--all buyers and no sellers--for more than a minute,” said a trader at one of the large oil trading desks, who asked to remain unidentified.
He said the oil prices have twice hit post-invasion lows in the past week but then, on each occasion, sharply rebounded within 12 to 24 hours. “I think most market participants are hoping and planning for peace, but they’re scared of war,” he said.
Peter Beutel, oil market analyst with Pegasus Econometrics Group in Hoboken, N.J., said traders’ sentiments has shifted constantly over the past few days.
“Last Friday it was peace; Monday and Tuesday it was war; Wednesday morning people thought peace, and in the afternoon they were sure it would be war,” he said. “We’ve had a real emotional pendulum in the pit.”
In the stock market, the Dow Jones industrial average has now lost 163.36 points since Dec. 31, or about 6% of its value. But some analysts don’t expect too much of a further drop unless there is war.
“It’s discounted so much I think it’s taken into account everything but an outbreak of war,” said Michael Metz, market strategist with Oppenheimer & Co. in New York. “I don’t think you’re going to see much more liquidation by investors in here. But the question is what will bring them back. I think they just want more clarity” on the future.
Many analysts say they are no longer as fearful as they were in August that a war would destroy Mideast oil production and sharply raise prices. But they worry that a war would quickly turn what may still be a brief and shallow recession into something far more serious.
