Stocks jump as oil tumbles on relief over Gustav
By Tim Paradis, AP Business Writer
NEW YORK — Stocks soared Tuesday as oil prices fell sharply on reports that the Gulf Coast and its oil facilities have been spared heavy damage from Hurricane Gustav. The Dow Jones industrial average rose more than 150 points.
Light, sweet crude more than $6 to $109.06 on the New York Mercantile Exchange, after earlier dropping as low as $105.46. The last time prices were in that range was in early April before a historic run-up above $147 per barrel.
The drop eased Wall Street's concerns not only about Gustav, but also about inflation's effect on the broader economy.
The market's optimism was also boosted by news that Korea Development Bank is in talks about taking part in a possible acquisition of Lehman Bros.Holdings. Such a move could allay some of Wall Street's worries about the troubled financial sector.
Bill Dwyer, chief investment officer at MTB Investment Advisors in Baltimore, said that beyond relief over the effects from Gustav, investors are betting that a slowing economy will crimp demand for oil. But he said the pointed reactions of the energy and stock markets Tuesday illustrate the overall uncertainty about the economy.
FIND MORE STORIES IN: New Orleans | Louisiana | China | Gulf Coast | New York Mercantile Exchange | Singapore | Gulf of Mexico | Vienna | India | Organization of Petroleum Exporting Countries | Hurricane Gustav | Lake Charles | Platts | Magnolia | St. Charles | Gertz | Purvin | Victor Shum | McGraw-Hill | Anadarko Petroleum
"It just shows you how unstable the market is based on the perception of the macro economic outlook. It changes daily. There isn't a consistent viewpoint of what is actually happening in the economy," he said, noting that stocks fell sharply Friday after economic figures and a weak report from the technology sector unnerved investors.
Bond prices rose. dollar rose against most other major currencies, while gold prices fell sharply.
Investors showed little reaction to a report that showed U.S. manufacturing activity contracted slightly in August, as expected, and that inflation slowed. The Institute for Supply Management, a trade group of purchasing executives, said its index on manufacturing activity fell to 49.9 in August from 50 in July. Wall Street had expected a reading of 49.9, according to the median estimate of economists polled by Thomson Financial/IFR. A reading below 50 indicates contraction. The ISM also found that inflation lessened.
Lehman Bros. rose after the governor of the state-owned Korea Development Bank said discussions were underway to set up a consortium with private banks to acquire Lehman. The comments follow weeks of speculation that the investment bank could be acquired as it struggles amid tightness in the credit markets.
As Hurricane Gustav dissipated, traders quickly turned their attention to slowing global economic growth, speculating that demand for crude will be dampened even in rapidly expanding China and India.
"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."
The Organization of Petroleum Exporting Countries is scheduled to meet Sept. 9 in Vienna and has indicated it may take action to keep oil at the $100 a barrel level.Ahead of Gustav, there was some disruption to oil supplies as oil companies shut down production and evacuated facilities. Altogether, about 2.4 million barrels of refining capacity was halted, roughly 15% of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill. The Gulf Coast is home to nearly half of the nation's refining capacity.
Oil companies, rig owners and refiners spread out across the Gulf Coast to look for damage from Hurricane Gustav on Tuesday, and some were already putting equipment and people back in place to resume operations.
Preliminary indications were that Gustav caused little damage to onshore and offshore facilities, though the full impact likely won't be known for a couple of days.
The drop in oil prices sent stocks in sectors like airlines higher. Energy names fell as oil dropped.
In other corporate news, technology shares advanced after Google said it is releasing its own Internet browser to counter Microsoft's Internet Explorer.
Overseas, Japan's Nikkei stock fell 1.75%. In afternoon trading, Britain's FTSE 100 rose 0.24%, Germany's DAX index rose 1.40%, and France's CAC-40 advanced 1.31%.
What ever happened to the laws of supply and demand causing the prices to go up and down? If OPEC does this, is this entire industry doomed? I mean, oil continues to come down giving hope...
And if they intend to manipulate the price by controlling production, how was the price 50, 60, 70 dollars a barrel not so long ago and they didn't do anything about it then?