Money & Company

Tracking the market and economic trends
that shape your finances.

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

Oil price drop roils markets despite potential benefit to consumers

June 23, 2011 | 11:45 am

Wall Street is trying to make up its mind: Is the International Energy Agency's decision to release crude oil from reserves a good thing or a bad thing?

Stocks are trading broadly lower for the session, despite what would otherwise seem to be bullish news from the oil trading pits: Crude futures in New York fell as much as $5.72 a barrel early in the day and ended trading down $4.39 to $91.02. That's the lowest price since mid-February, just before energy prices soared amid escalating Mideast unrest.

But the turmoil in the energy markets Thursday has slammed oil company shares and triggered a general "flight from risk" that hit other commodity prices and boosted the dollar. A stronger greenback often is negative for U.S. exporters' stocks because they have benefited from the dollar's weakness over the last few years.

The Dow Jones industrial average was down 190 points, or 1.6%, to 11,919 after falling as much as 234 points earlier. Chevron was leading the Dow lower, falling 3.2% to $97.80.

Some market sectors have rallied much more strongly from their lows of the day as investors focus on the positive side of falling crude prices for consumers. Airlines, not surprisingly, are up sharply. Many retail stocks also are higher. And the tech-dominated Nasdaq composite index was off 0.6% to 2,652 after dropping as much as 1.6% at the opening bell.

But investors also have been spooked by more downbeat economic data, including another rise in U.S. jobless-benefit claims and dismal news on manufacturing and services-sector activity in Europe.

The reports come a day after the Federal Reserve trimmed its economic growth estimates for 2011 and 2012, and Chairman Ben S. Bernanke warned that head winds holding back the recovery "may be stronger or more persistent than we thought."

In that context, some investors may see the oil-reserves move as an act of economic desperation by the U.S. and other developed-nation governments that are members of the International Energy Agency.

Another issue weighing on markets Thursday: A key Republican player in the budget negotiations with the Obama administration pulled out of the talks, citing an impasse over tax issues. Republican leaders have said that without massive spending cuts they would quash any attempt to raise the federal debt ceiling, putting the Treasury at risk of defaulting on its debts by early August.

That isn't dimming anyone's appetite for Treasury securities at the moment: The flip side of the "flight from risk" is a flight to safety, meaning Treasuries.

The 10-year T-note yield has plunged to 2.90%, the lowest since late November, from 2.98% on Wednesday.

-- Tom Petruno