Oil’s latest decline sends stocks higher
Oil prices amazed nearly everyone with how high they went. Could the shock now be how low they’ll go?
Crude futures in New York fell Wednesday for the sixth time in seven sessions, dropping $3.98 to $124.44 a barrel, the lowest closing price since June 4. The latest decline, coupled with some upbeat corporate financial results, sent stock prices up.
The government’s report of a larger-than-expected weekly rise in gasoline inventories helped spark the sell-off in oil.
Oil is down 14.4% from its record closing high of $145.29 on July 3. But given how many times traders and analysts were wrong in calling the peak over the last year -- $90, $100, $120, $130 -- there’s a natural reluctance to believe this time it’s for real.
“We’ve see this movie before,” said John Kilduff, senior vice president of risk management at trading firm MF Global Inc. in New York.
Still, he said, “Things are a little different this time because of the economy.”
Gasoline demand is falling in the U.S. as consumers retrench. Business conditions have deteriorated in Europe. Even China’s economic growth has slowed this year.
In a report issued Wednesday on regional economic trends, the Federal Reserve indicated the pace of activity had “slowed somewhat since the last report” on June 11. And that last report wasn’t exactly brimming with optimism.
Meanwhile, record energy costs “are destroying demand” for oil, said Peter Beutel, head of energy consulting firm Cameron Hanover Inc. in New Canaan, Conn. “Prices are way too high.”
Oil still could run to $170 a barrel, he said, if a major hurricane hits oil and gas fields in the Gulf of Mexico or if Israel or the U.S. attacks Iran. But barring a catastrophe, Beutel said, there’s nothing stopping crude from sinking back to $80 based on economic fundamentals.
And the mad rush to $145, as speculators poured into the market since March, could ensure that the current sell-off also turns into a mad rush to exit the market, some analysts say.
Why? Because speculators are only interested in playing the price trend, whichever way it’s going, said Larry Young, senior trader at Infinity Futures in Chicago.
“You can make money just as well on the short side when the price is retreating,” he said.
The next big test for chart-watching traders is the $121-a-barrel level, Kilduff said. If the price breaks through that mark, look out below, he says.
In the stock market, the Dow Jones industrials rose 29.88 points, or 0.3%, to 11,632.38.
The Standard & Poor’s 500 index rose 5.19 points, or 0.4%, to 1,282.19 and the Nasdaq composite index rose 21.92 points, or 1%, to 2,325.88.
The Russell 2,000 index of smaller companies rose 2.37 points, or 0.3%, to 719.19.
Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange.
Yields on government bonds climbed. The 10-year Treasury note rose to 4.12% from 4.1% late Tuesday.
The dollar was mixed against other major currencies. The Mexican peso, which has been on a hot streak, again rose against the dollar, putting the greenback on the verge of falling below the 10-peso level for the first time since 2002.
Oil’s retreat pushed up airline stocks. Delta Air Lines rose 89 cents, or 12%, to $8.60, and Continental Airlines jumped $1.54, or 12%, to $14.80.
On the earnings front, AT&T; rose $1.24, or 3.9%, to $33.06 after the company said its profit rose as a jump in wireless subscribers offset a slide in land-line customers.
Pharmaceuticals firm Pfizer said its second-quarter earnings more than doubled as restructuring charges declined and the weak dollar helped lift overseas revenue. The stock rose 72 cents, or 3.9%, to $19.07.
Fannie Mae and Freddie Mac rallied on expectations that the House would approve, which it did after the close, legislation authorizing the government to rescue the mortgage giants. The bill also is intended to save 400,000 homeowners from foreclosure. Fannie Mae surged $1.59, or 12%, to $15. Freddie Mac jumped $1.10, or 11%, to $10.80.
An index of financial stocks in the S&P; 500 gained 1.9%.
Shares of FirstFed Financial shot up $3.68, or 54%, to $10.52 after the Santa Monica-based bank operator of First Federal Bank of California reported that the volume of delinquent loans in its balance sheet declined in June.
But Washington Mutual sank $1.17, or 20%, to $4.65 after the largest U.S. thrift reported a $3-billion loss late Tuesday because of mortgage losses.
In other market highlights:
* Costco Wholesale fell $8.57, or 12%, to $63.43 after warning that its profit would fall short of expectations.
* Amazon.com climbed as much as 8.6% in after-hours trading after posting better-than-expected earnings.
* Overseas, key stock indexes jumped 1% in Japan, 1.6% in Britain, 1.5% in Germany and 1.9% in France.
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The Associated Press was used in compiling this report.
