FINANCIAL MARKETS : Oil Prices Surge as Iran Moves Troops Near Gulf
Crude oil prices soared to a seven-month high, stopping just short of $19 a barrel, on concern about falling gasoline production and Iran’s stepped up troop movements in the Persian Gulf.
At the same time, the dollar, stocks and bond markets were rattled early in the day on a Commerce Department report that America’s trade deficit surged 68.4% in January, well above economists’ expectations.
Crude oil for May delivery surged 55 cents, to $18.96 a barrel, on the New York Mercantile Exchange. It was the highest price since Aug. 10. April unleaded gasoline gained 1.75 cents, to 57.9 cents a gallon, and April heating oil rose 1.37 cents, to 47.02 cents a gallon.
Oil prices shot up after U.S. Defense Secretary William Perry, speaking in Bahrain, said Iran has placed 6,000 troops, along with anti-aircraft missiles and chemical weapons, near the channel. Perry said the deployment is “beyond any reasonable defensive requirement” and is “a threat to shipping in the area.”
A drop in U.S. gasoline production below 7 million barrels day, the American Petroleum Institute said late Tuesday, caused gasoline inventories to fall a larger-than-expected 1.6%, leaving them 2% below year-ago levels.
In the currency market, the dollar fell against the German mark and Japanese yen early Wednesday following release of the trade report. However, it mostly recovered later in the day, to finish mixed.
The financial markets fell after release of the trade report, which showed the total deficit in goods and services at $12.2 billion, up from a December imbalance of $7.3 billion. The deficit in just merchandise climbed to $16.3 billion, the highest monthly level in U.S. history.
Many economists had been forecasting a deficit around $9 billion.
Traders later concluded that the trade deficit figures, which many thought would put additional downward pressure on the dollar, might not have such a corrosive effect and the dollar recovered.
In New York, the dollar closed at 88.95 yen, down from 89.21 Tuesday. The dollar also was changing hands at 1.403 marks, down from 1.412.
The Dow Jones industrial average rose 10.38 points to close at 4,082.99. At the same time, the broader market recovered from its morning lows, to finish mixed as investors shrugged off fears about the impact of the record trade deficit.
Declining issues slightly outnumbered advancers by about 8 to 7 on the New York Stock Exchange with 313.12 million shares changing hands, down from Tuesday’s 367.12 million.
Broad market indexes were also mixed. The New York Stock Exchange Composite Index gained 0.22 point to 267.80 while the Standard & Poor’s 500 stock index rose 0.59 point to 495.66.
The Nasdaq Composite Index lost 0.68 point to 809.10 while the American Stock Exchange Market Value Index gained 0.50 point to 456.15.
Bonds took their cue from the dollar’s rebound as traders in the U.S. currency apparently decided that the negative trade news wasn’t so bad for investors after all.
The yield on the government’s benchmark 30-year bond closed up 0.01% to 7.45% from 7.46% on Tuesday. Its price, which moves in the opposite direction, ended down 1/32 point, or 31 cents per $1,000 invested.
Among Wednesday’s highlights:
* Several pharmaceutical companies gained after Smith Barney urged its clients to buy them. Eli Lilly rose 1 1/4 to 70 1/2, Pfizer gained 1 to 87 1/2 and American Home Products was up 1 1/8 at 74 1/2. However, Merck & Co. didn’t benefit from the boost in its investment rating, losing 3/8 to 44 1/4. Drug stocks have been in favor of late as investors believe the ongoing industry consolidation will support profits.
* Among the economically sensitive stocks, Aluminum Co. of America rose 2 1/8 to 40, International Paper Co. gained 1 1/8 to 73 1/8, and Exxon Corp. moved up 7/8 to 65 3/8. Mobil gained 1 to 88 7/8.
* Fingerhut lost 3 1/8 to 11 1/8. The direct merchandiser said its first quarter earnings would be below analysts’ estimates.
* Apple Computer rose 1 13/16 to 38 1/16 after Microsoft Corp. Chairman Bill Gates said his company will continue making products for the Macintosh computer. Microsoft Corp., ended up 1/2 to 70 15/16.
* Pep Boys fell 1 1/4 to 31 7/8 after Raymond James downgraded the issue to “neutral” from “accumulate.”
* Oracle Systems dropped 1 1/4 to 33. At least two investment firms downgraded the stock.
* Starbucks fell 1 to 23 1/8 after the Wall Street Journal reported that insiders of the premium coffee company are selling their shares.
Stocks and futures ended lower in Tokyo, with the key Nikkei 225-share average closing below 16,000 for the first time since Nov. 17, 1992. It closed down 225.11 points at 15,904.85. In Frankfurt, the DAX 30-share average edged down 0.29 point to 1,982.66, while London’s Financial Times 100-share average rose a modest 4.7 points to 3,139.7.
Mexico’s Bolsa index closed 9.92 points higher at 1,591.16.
