Oil Prices Climb, Lead to Stock Slide

Crude oil prices continued their dramatic climb Thursday, further demoralizing Wall Street and helping to drive major stock indexes to new 2004 lows.

Oil futures for September delivery jumped 70 cents to $45.50 a barrel in New York, a record in the two decades futures have traded. The price has soared from $37 a barrel at the end of June amid rising fears of global supply disruptions.

Those fears deepened Thursday as U.S. Marines attacked Iraqi insurgents in the Shiite holy city of Najaf, Russia’s biggest oil company suffered another setback in its fight to stay solvent and oil traders braced for this weekend’s referendum on the troubled presidency of Hugo Chavez in Venezuela, a leading energy exporter.

In the stock market, battered for most of the last seven weeks by concerns about the economy, a disappointing earnings report from technology giant Hewlett-Packard added to the gloom.

The Dow Jones industrial average slid 123.73 points, or 1.2%, to 9,814.59, closing near its nadir for the session and at the lowest level since Nov. 28.

The technology-dominated Nasdaq composite index dropped 29.93 points, or 1.7%, to 1,752.49, its weakest finish since Aug. 18.

Since the end of June the Dow has slumped 5.9% and Nasdaq has tumbled 14.4%.

The stock market’s decline “is in complete lock step with oil’s rise,” said Marc Pado, market strategist for New York-based brokerage Cantor Fitzgerald.

Indeed, many market pros have for weeks predicted that Wall Street would bottom out, if not rally, as soon as oil prices stabilized or pulled back.

The bullish view is that the U.S. economy is poised to accelerate from an apparent slowdown in June.

But the upward pressure on crude prices has shown no sign of abating -- even though many analysts contend there is no shortage of oil in the global market.

“This is like hysteria and nobody seems able to stop it,” said Fadel Gheit, energy analyst at brokerage Oppenheimer & Co. in New York.

Gheit and other analysts say there is enough oil available to meet current demand. The problem is that “there is very, very little slack in the system,” said John Kingston, global director for oil at research firm Platts in New York.

“We’re at the point where we cannot afford to have one more disruption” in supply, he said.

Yet the risk of supply cutoffs has been worsening in recent days.

In Iraq, Shiite insurgents have threatened to attack Iraq’s major oil pipelines if U.S. forces invaded Najaf.

In Russia, oil company Yukos, which pumps about 2% of world crude output, has been struggling to stay afloat as the government pursues a demand for payment of $3.4 billion in back taxes.

On Thursday, a Moscow court denied a request from Yukos for an extension of the government’s Aug. 31 deadline for the tax payment, Reuters reported. The company has said it could be forced into bankruptcy, threatening its oil exports.

In Venezuela, the world’s fifth-largest oil exporter, voters will decide Sunday whether to recall President Chavez. Oil traders fear that his ouster could result in near-anarchy.

“If we have chaos in Venezuela, we could wake up Monday morning and see people in the streets and blocking [oil] production,” Gheit said. “I guarantee you oil prices [would] race to $50 within the week.”

On Wall Street, worries about the effects of high oil prices on the economy have been compounded this week by downbeat business forecasts from computer networking leader Cisco Systems on Tuesday and Hewlett-Packard on Thursday.

Other tech companies, including Dell Computer and Agilent Technologies, have sounded more confident about their near-term prospects. And the Federal Reserve, in raising its benchmark short-term interest rate from 1.25% to 1.5% on Tuesday, said the economy “appears poised to resume a stronger pace of expansion.”

Cantor’s Pado said that, with many stocks trading at their lowest levels since last year, investors who were optimistic about the economy weathering the oil-price surge didn’t feel an urgency to sell.

Trading volume has been relatively subdued this month, he noted.

At the same time, Pado said, “Many people feel there is very little reason to buy,” with so much uncertainty over the oil supply situation, possible terrorist attacks and the presidential election.

That leaves the market vulnerable to a continued gradual slide, analysts said.

So far, the losses in blue-chip indexes such as the Dow and the Standard & Poor’s 500 from their 2004 peaks are in the range of a normal market “correction.” The S&P;, which fell 12.56 points, or 1.2%, to 1,063.23 on Thursday, is down 8.2% from its high reached in February.

The Nasdaq index, however, is down 18.6% from its 2004 high reached in January.