Stocks Tumble as Oil Tops $55 Per Barrel on Supply Fears
NEW YORK (AP) -- Worried investors sent stocks tumbling Friday as crude oil futures topped $55 per barrel and tepid earnings from Microsoft Corp. and the Coca-Cola Co. offset Google Inc.'s strong third-quarter report. The Dow Jones industrials fell nearly 108 points, while the Nasdaq composite index dropped 2 percent. The major indexes finished the week mixed.
Oil prices again pressured the market, casting doubt not only on fourth-quarter earnings, but also on the health of the economy as a whole. A barrel of light crude was quoted at $55.17, up 70 cents, on the New York Mercantile Exchange.
Oil Tops $55 Per Barrel on Supply Fears
Friday October 22, 3:37 pm ET
By Brad Foss, AP Business Writer
Crude Oil Futures Surge Above $55 Per Barrel As Concerns Mount Over Global Supply, Heating Oil
Oil futures prices surged to new heights above $55-a-barrel on Friday as concerns about the global supply of heating oil persist ahead of winter in the Northern Hemisphere.
Crude for December delivery climbed 70 cents to settle at $55.17 per barrel on the New York Mercantile Exchange, surpassing the previous record close of $54.93. Heating oil futures rose 1.85 cents to an unprecedented $1.598 per gallon.
The rally in heating oil has also spilled over into natural gas futures, which soared 50.3 cents Friday to $8.20 per 1,000 cubic feet. Natural gas futures are now about 67 percent higher than a year ago, even though analysts agree that supplies of this mostly-domestic fuel are ample.
"The primary concern now is the heating oil inventory level in the U.S," said Victor Shum, an analyst at Texas-based energy consultants Purvin & Gertz.
On Wednesday, the Energy Department reported that U.S. inventories of distillate fuel, which include heating oil and diesel, shrank for the fifth consecutive week, leaving supplies nearly 10 percent below year ago levels.
Fears of a cold Northern Hemisphere winter have further stoked the price of heating oil, as dwindling stocks have also been reported in Western Europe and Japan.
Demand for jet fuel -- kerosene and additives -- also typically rises during the Christmas season because of extra flights, adding even more pressure.
"Production of heating oil has to ramp up fast as there is a lot of catching up to do," said Shum.
Yet some analysts believe heating-oil supply fears have been somewhat overblown.
Inventories are "not catastrophically low by any means," said Andrew Lebow, senior vice president at Man Financial, a New York-based brokerage.
"The market has been so wracked with anxiety by it. It's really difficult to explain," he added. "What could be problematic for the market is if it's an early cold, if November ends up being cold."
Also Friday, December Brent crude futures on London's International Petroleum Exchange traded at $51.22 per barrel, up 50 cents.
While crude futures prices are more than 80 percent higher than a year ago, they still need to reach $80 per barrel in order to surpass the all-time peak -- in inflation-adjusted terms -- set in February 1981.
Still, disruptions in production and turmoil in key producers Iraq, Venezuela, Nigeria and Russia continue to haunt the market.
The world's available production capacity is just slightly above 1 percent of the daily diet of 82.4 million barrels, leaving little wiggle room in the event of a supply disruption.
"Geopolitical tensions have eased ... but they are certainly in the background, and the fact that we have a slim supply buffer is always a problem," Shum said.
Oil prices have gone up more than $10 a barrel since mid-September because of production snags in the Gulf of Mexico, where more than 23 million barrels have been lost since Hurricane Ivan hit.
Australian Prime Minister John Howard joined German Chancellor Gerhard Schroeder as the latest in a string of world leaders to express fears over how skyrocketing oil prices will affect economic growth.
"If it goes on indefinitely, of course it will have an effect on the economy," Howard said on Melbourne radio station 3AW. "It will mean that we have slower growth than might otherwise be the case."
Economists already have begun to lower their estimates for global economic growth in 2005, with Morgan Stanley saying last week it had changed its forecast to 3.6 percent from 3.9 percent, warning that there may be "more cuts to come."
Iraq, however, has said it may be able to pump out 3 million barrels per day in 2005, with 1.8 million for export, a move that may ease prices.
Associated Press writers Jane Wardell in London and Yeoh En-Lai in Singapore contributed to this report.
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