Oil Prices Pull Down Stocks

Stocks retreated sharply Friday, sending the Dow to an 85-point loss, as traders were troubled by another record high for oil prices, a double dose of disappointing economic news and a weak sales outlook from computer giant Dell.

The sell-off wiped out much of Thursday’s big gains and raised fresh doubts about the economy’s ability to shake off the effect of ever-higher oil prices.

“The longer oil remains elevated, the higher it goes, the more it’s going to be a drag on the economy and consumers,” said Russ Koesterich, portfolio manager at Barclays Global Investors in San Francisco.

“People have gone broke predicting the end of the spending binge, but that said, the U.S. consumer is extended,” he said. “Investors are looking for evidence that spending will decelerate.”

In moderate trading, the Dow Jones industrial average fell 85.58 points, or 0.8%, to 10,600.31; the broader Standard & Poor’s 500 slipped 7.42 points, or 0.6%, to 1,230.39; and the technology-heavy Nasdaq composite sank 17.65 points, or 0.8%, to 2,156.90.

Not surprisingly as oil surged, many energy stocks continued to rally. The so-called XOI index of major energy issues hit a record high, and is up 39.5% this year.

But losing shares outnumbered winners by more than 3 to 2 on both the New York Stock Exchange and on Nasdaq.

For the week, the Dow gained 0.4% and the S&P; 500 rose 0.3%, but Nasdaq dropped 1%.

The yield on the benchmark 10-year U.S. Treasury note fell to 4.24%, from 4.31% on Thursday, as reports showing a wider trade deficit in June and a drop in consumer confidence early this month damped expectations for economic growth. That, along with the stock market sell-off, may have caused some investors to shift money into bonds.

But oil was the No. 1 worry on Wall Street on Friday, as near-term futures contracts for crude oil and its byproducts surged in unison, fueled largely by refinery outages and worries that strong demand would further strain supplies.

Crude oil for September delivery closed at $66.86 a barrel in New York trading, up $1.06, for its fourth record close in the last five days. Adjusted for inflation, however, the latest record is still about $20 short of the all-time highs from the early 1980s.

Market experts attributed Friday’s jump to the uncertainties of worldwide oil production at a time when demand has been undeterred by record prices. With little or no spare oil production capacity left to quickly tap, any blip that cuts output -- or threatens to do so -- is immediately reflected in futures prices and in other energy markets.

On Friday, those blips included predictions that a spate of hurricanes could hamper Gulf of Mexico oil production before summer is over, new political tensions in the Middle East, and ongoing production troubles in the North Sea, India and Nigeria.

All this would be less of a concern if the global demand for oil showed signs of slowing, but consumption has kept rising.

“We have higher demand-driven markets,” said Peter Fusaro, chairman of consulting firm Global Change Associates. “Because of the hurricane predictions, we could have more problems. And we’ve still got three more weeks of the [summer] driving season, so things could go higher.”

Those fears also were reflected in the U.S. gasoline market, where inventories have been falling and refinery glitches have cut into production. Unleaded gasoline futures for September delivery rose 5.5 cents to a record $2.005 a gallon Friday.

“Right now, as a country, we’re seeing prices setting new highs every week,” said Tony Mercandetti, editor of the online journal Energy News Today.

On Friday, the average retail price for self-serve regular gasoline and for diesel hit new highs nationwide and in California, according to AAA. In California, the cost of a gallon of self-serve regular averaged $2.718, up 2 cents from Thursday. Diesel pump prices also rose 2 cents, to a statewide average of $3.094 a gallon, the highest of any state.

In a sign that energy prices are taking a toll on the public, the University of Michigan’s preliminary U.S. consumer sentiment index for August slumped to a reading of 92.7. That was down from 96.5 in July.

Susan George, who owns an animal transport company called Pet Taxi, is starting to feel the pinch from higher gas costs.

On Friday, she said she fielded a request to take a terrier from Los Angeles International Airport to Rancho Santa Margarita in Southern Orange County -- and heard herself quote $255 instead of $195 for the job.

“I should have said $275,” said George, who said her Marina del Rey business implemented a smaller rate hike for local trips Friday.

Wall Street also was rattled by the Commerce Department’s report that the nation’s trade deficit grew to $58.8 billion in June as petroleum purchases lifted imports to a new high. The deficit widened from $55.4 billion in May and exceeded analysts’ expectations of a $57.3-billion gap.

A disappointing forecast from tech bellwether Dell didn’t help matters. The world’s leading seller of personal computers slid $2.94 to $36.64 after saying its sales for this quarter would be $14.1 billion to $14.5 billion, guiding analysts down from the consensus estimate of $14.6 billion.

Among other market highlights Friday:

* McDonald’s slid $1.44 to $33.25, hurting the Dow, after analysts cast doubt on reports that Vornado Realty Trust might buy its real estate holdings. The speculation had sparked a rally in its shares Thursday.

* San Jose-based newspaper chain Knight Ridder rose $3.39 to $65.75 after unveiling a stock buyback plan.

* Game and ring tone maker Jamdat Mobile of Los Angeles lost $7.54 to $21.95, having said after the bell Thursday that this year’s sales would fall shy of expectations.

* Disappointing earnings hurt restaurant chain Red Robin Gourmet Burgers, which dived $14.24 to $45.55.