Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Oil tumbles on doubts that price gains can hold up

April 12, 2011 |  3:05 pm

Oil prices led a broad decline in commodities Tuesday on growing doubts that the global economy can handle energy costs at these levels.

But the slump in raw-materials prices also did a number on the stock market by dragging down shares of companies in commodity businesses. The Dow Jones industrial average slid 117.53 points, or nearly 1%, to 12,263.58, and broader indexes fell for a fourth straight session -- the longest losing streak since November.

U.S. crude oil futures for May delivery tumbled $3.67, or 3.3%, to $106.25 a barrel, the lowest closing price since March 30. The price is down 5.8% since peaking at a 2 1/2-year high of $112.79 on Friday.

The London oil price, considered a better indicator of world prices, fell $2.89 to $121.10 a barrel.

Oiltraders Oil’s surge this year, amid widespread social unrest in the Middle East and North Africa, may be sowing the seeds of its own demise, some analysts say.

“There are real risks that a sustained $100-plus price environment will prove incompatible with the currently expected pace of economic recovery,” the International Energy Agency said in a report Tuesday. “The surest remedy for high prices may ultimately prove to be high prices themselves.”

Goldman Sachs also stoked caution among commodity-market bulls by advising clients late Monday to take profits, with oil up 30% in six months.

And Reuters said it had been told by Saudi Arabia-based sources that “a lack of customer demand had forced the kingdom to throttle back production after a sharp increase in March to offset lost Libyan crude.”

Commodity prices in general were sharply lower, pulling the Thomson Reuters/Jefferies CRB index of 19 raw materials down 1.9%, the biggest one-day drop since March 15. Gold futures in New York slid $14.50 to $1,452.90 an ounce.

In stock trading, Asian and European markets had slumped overnight after Japan said the disaster at its Fukushima nuclear plants now equaled the 1986 Chernobyl meltdown in the former Soviet Union, based on an international rating system that measures radiation release.

Japan’s Nikkei 225 index fell 1.7% to 9,555. In Europe, major markets lost about 1.5%.

By contrast, most U.S. share indexes fell less than 1%, and the heaviest losses were limited to energy and other commodity issues. Energy stocks in the Standard & Poor’s 500 index tumbled 3%, on average, while the S&P 500 overall lost 0.8%.

Still, the equity market has been weakening for the last four sessions. The declines have been modest for blue-chip issues but more pronounced for smaller stocks, which have led this year’s rally on Wall Street on optimism about the domestic economy.

The Russell 2,000 small-stock index fell 1.4% Tuesday and is down 3.7% since reaching a 3 1/2-year closing high Wednesday.

Many investors are looking to first-quarter corporate earnings for guidance on the economy’s outlook. The reporting season hasn't gotten off to a great start: The first earnings announcement from a Dow-index stock -- aluminum giant Alcoa’s report late Monday -- failed to impress investors, even though the company beat profit expectations.

Alcoa’s shares dropped $1.07, or 6%, to $16.70 on Tuesday, though they’re still up 8.5% year to date.

-- Tom Petruno


Expect more pain at the gas pump

Inflation pressure from higher commodity prices won't last, Fed's Yellen says

Photo: Traders in the crude-oil options pit at the New York Mercantile Exchange on Tuesday. Credit: Mary Altaffer / Associated Press