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Vote to pump less oil scares markets

The major indexes slip after OPEC lowers its output. Rising crude oil prices are seen as a threat to the economic recovery.

Wire services
Published September 25, 2003

The stock market was roiled for the second time this week by a global decision that sent indexes sharply lower - this time it was OPEC's decision Wednesday to cut oil production, a move certain to raise energy costs.

The Organization of Petroleum Exporting Countries decided Wednesday to lower its output ceiling by 900,000 barrels a day to 24.5-million barrels starting in November, an effort to bolster prices ahead of an expected decrease in demand early next year.

Crude oil prices advanced more than 4 percent to $28.24 in New York on the news, which was regarded on Wall Street as a threat to consumer and business spending, and therefore a threat to the economic recovery.

The Dow Jones Industrial Average posted its second loss of the week of more than 100 points, Standard & Poor's 500-stock index had its biggest loss in four months and the tech-driven Nasdaq composite fell 3 percent - its biggest drop in nearly 15 months.

White House spokesman Scott McClellan, with President Bush in New York, would not comment directly on the OPEC move but said the economy depends on stable oil supplies and prices.

One analyst said he expected the action would keep gasoline and heating oil prices that consumers pay near current levels. OPEC pumps about a third of the world's crude.

Monday, stocks, bonds and the dollar plunged after the Group of 7 industrial nations endorsed a policy of flexible currency exchange rates, a move aimed at restraining Japan's intervention in currency markets to bolster its economy.

The dollar has weakened against the yen all week, and dipped again Wednesday to 111.68 yen to the dollar. It had been 120.55 yen to the dollar as recently as July 31.

Wednesday's oil shock caught the markets off guard. Oil shares were mixed on Wall Street, however, with Exxon Mobil dropping 0.3 percent.

Safe-haven Treasuries attracted buyers, sending prices higher on prospects that rising oil prices would restrain the economy and cut into corporate profits. The benchmark 10-year Treasury yield, which moves opposite to price, fell to 4.13 percent from 4.21 percent.

The 10-year yield has fallen almost 10 percent since Sept. 4 as the bond market recovered from the summer selloff.

While analysts think it's too early to call this the start of the long-awaited stock market correction, the indexes have in fact posted significant losses over just five trading days - 2.3 percent for the Dow, 2.7 percent for the S&P 500 and 2.9 percent for the Nasdaq composite.

"The lack of economic news and unnerving silence that seems to have enveloped this earnings preannouncement season have put investors in a selling mood," said Jocelynn Drake, an analyst at Schaeffer's Investment Research.

According to Prudential Financial strategist Bryan Piskorowski, the market is "overworked and uninspired."

"The $3-trillion in market gains over the past six months make for a tough act to follow," he said. "There's a cut-and-run mentality here, and it's not coming as too much of a surprise."

Larry Wachtel, market analyst at Wachovia Securities, agreed. He said many market watchers have been wondering when stocks would really pull back, because recent selloffs have been short-lived and replaced by more buying.

"You are overextended, overbought, overdone. You have no juice left on the upside," said Wachtel, who called the OPEC news "an excuse" for investors to cash in some gains.

Stocks were also hurt Wednesday after media giant Viacom, which owns CBS and MTV, lowered its forecast for full-year financial results because of weak ad revenue. The shares fell 3.5 percent. Other broadcasting and entertainment stocks also fell, including Clear Channel Communications by 3.9 percent.

Technology stocks were also hit hard. Intel, the chip maker, fell 4 percent, and software leader Microsoft fell 3.9 percent.

The only winners among the 30 Dow stocks were fast-food giant McDonald's, up 0.4 percent, and consumer products producer Procter & Gamble, 0.2 percent.

The Dow closed Wednesday at 9,425.51 with a loss of 150.53 points, or 1.6 percent. The S&P-500 fell 19.66 points, or 1.9 percent, to 1,009.38, and the Nasdaq composite 58.02 points, or 3.1 percent, to 1,843.70.

- Information from Cox News Service and the Associated Press was used in this report.

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