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Oil prices fall after briefly hitting record high
Geopolitical worry, rising gasoline demand could push prices sharply higher

Oil prices eased for the second day in a row on Friday after briefly hitting record territory above $75 a barrel on geopolitical tensions and rising gasoline demand.

Meantime, natural gas futures fell to their lowest level in nearly two years as domestic supplies in storage grew to roughly 30 percent above their five-year average.

Analysts said the two-day pullback in crude-oil futures reflected profit-taking after prices had climbed for nine straight trading sessions beginning June 21.

“The bigger trend is pretty well intact,” said Michael Guido, Societe Generale’s director of commodity strategy.

The ongoing nuclear standoff between the West and Iran is keeping a high floor beneath prices because of fears that sanctions imposed against Iran could prompt OPEC’s No. 2 producer to withhold some of its crude from the market. Other geopolitical factors include the war in Iraq, which has hindered output there, and instability in Nigeria, which has forced the shutdown of some 500,000 barrels-a-day of oil production.

The increasing motor-fuel consumption comes despite near-$3-a-gallon pump prices, and analysts say even the slightest interruption to the flow of crude or refined products could push prices above that psychologically significant benchmark.

Light sweet crude for August delivery climbed as high as $75.78 a barrel in overnight electronic trading on the New York Mercantile Exchange before settling at $74.09, a decline of $1.05. The previous intraday record was $75.40 set Wednesday.

Nymex gasoline futures fell 1.96 cent to settle at $2.2394 a gallon, while heating oil futures declined 5.12 cents to close at $2.0104 a gallon.

Oil futures are roughly 22 percent higher than a year ago and the average retail price of gasoline is $2.94 a gallon, or 32 percent above year ago levels. But that doesn’t appear to be slowing down motorists.

The Department of Energy said Thursday that U.S. gasoline consumption over the past four weeks averaged 9.5 million barrels a day, or 1.4 percent more than a year earlier. To keep up, U.S. refiners ran their plants at 93 percent of total capacity.

The global oil industry is pumping roughly 85 million barrels a day to meet rising demand but there is little room for error, analysts say, because the amount of spare production capacity that could be tapped in an emergency is razor thin. The same goes for the refining end of the business.

As a result, any real or feared disruptions to output can push prices sharply higher, making energy traders eager to make that bet.

“The financial players are attracted like a moth to a flame to the energy complex,” said Larry Goldstein, president of the Petroleum Industry Research Foundation, a New York-based industry-financed think tank. “If you bet right, you get unreasonably rewarded.”

In London, Brent crude hit a new high of $75.09 a barrel. In later trading, August Brent on the ICE Futures exchange fell 57 cents to settle at $73.51.

In other Nymex trading, August natural gas futures fell 14.1 cents to settle at $5.523 per 1,000 cubic feet — the lowest close since Sept. 27, 2004, when prices finished at $5.262.

The United States is awash in natural gas and some analysts believe there may not be enough underground storage capacity, potentially forcing some producers to shut wells. Others predict the falling price will spark demand and cause the supply overhang to be whittled away by fall.

The Energy Department said Friday that U.S. inventories of natural gas grew by 73 billion cubic feet last week to more than 2.6 trillion cubic feet. The five-year average for this time of year is just above 2 trillion cubic feet.

Stocks plunge as oil surges, companies warn
U.S. economy created 121,000 jobs in June; 3M delivers profit warning

Corporate profit warnings and record oil prices overshadowed a benign jobs creation report and sent stocks sharply lower Friday, as investors worried that the U.S. economy is cooling too quickly.

The Labor Department reported just 121,000 new jobs in June, short of the 175,000 economists expected. With the unemployment rate steady at 4.6 percent, the report was exactly what Wall Street had hoped for — low unemployment, but modest job growth that won’t spark a sharp increase in consumer demand, which could foreshadow inflation and interest rate hikes.

However, with 3M Co. warning of lower-than-expected earnings, investors grew concerned that slower economic growth, while good for keeping rates steady, could cut into corporate profits. However, few other companies have warned the markets about falling profits, analysts noted.

“I think what you’re seeing with 3M is a bit of a head-fake,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “Overall, I think you’ll see second-quarter profits come in strong across the board. Today could just be a tempest in a teapot.”

Record crude oil prices also pressured stocks, with traders worrying that consumers hit with higher energy prices would spend less elsewhere. A barrel of light crude set an intraday record of $75.78 before retreating.

The Dow Jones industrial average finished the day down 134.63 points, or 1.20 percent, with part of its fall due to a drop in component 3M. The broader Standard & Poor’s 500-stock index slid 8.60 points, or 0.68 percent, while the Nasdaq composite index gave up 25.03 points, or 1.16 percent.

Bonds rallied for a second straight session, with the yield on the 10-year Treasury note falling to 5.13 percent from 5.18 percent late Thursday. The dollar fell against most major world currencies.

The market’s losses illustrated the acute balance investors, perhaps unrealistically, are seeking. On the one hand, a strong economy could spark inflation, but a weak economy would eat into corporate profits and send stocks lower. While the Federal Reserve seeks to maintain that balance, the sell-off reflects investors’ chronic worries that the balance will shift, or has already.

“You got people wondering here if the Fed has already overshot on rates,” pushing them too high and halting economic growth, said Bill Groenveld, head trader for vFinance Investments. “And that fear has the market jumping over every little thing right now.”

The holiday-shortened week showed Wall Street’s edgy mood as stocks gyrated from session to session. For the week, the Dow lost 0.53 percent, the S&P slid 0.37 percent and the Nasdaq tumbled 1.91 percent due to weakness in technology and small-cap stocks.

The industrial conglomerate 3M, seen as something of a barometer for its sector, was particularly troubling Friday. 3M cut its second-quarter and 2006 profit forecasts due to lower-than-expected sales, and its stock tumbled $7.29, or 9 percent, to $74.10.

Other companies added to the dour mood with more warnings of sales shortfalls. Advanced Micro Devices Inc. fell 27 cents to $23.56 after cutting its revenue forecasts. Rival Intel Corp., a Dow industrial, dropped 29 cents to $18.56.

And Starbucks Corp. stock suffered after the coffeehouse chain reported June sales figures that fell short of analysts’ forecasts. Starbucks slid $1.84, or 4.9 percent, to $36.04.

In other news, General Motors Corp. added 28 cents to $29.48 after the automaker’s board voted to start talks with Renault SA and Nissan Motor Co. on a potential alliance.

Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where preliminary consolidated volume came to 2.2 billion shares, compared with 2.18 billion traded Thursday.

The Russell 2000 index of smaller companies was down 11.34, or 1.57 percent, at 709.30.

Overseas, Japan’s Nikkei stock average slipped 0.09 percent. In Europe, Britain’s FTSE 100 closed down 0.02 percent, France’s CAC-40 fell 0.26 percent for the session and Germany’s DAX index lost 0.24 percent.

Gas prices here have already risen to $3.09 as of yesterday for the low grade gas. I expect because the oil prices today that it will rise a significant amount tomorrow.