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Markets rattled as war fears hit oil prices

Fears of full-blown war in the Middle East could unleash fresh turbulence on the world's financial markets this week, as investors weigh the impact of record oil prices on the vulnerable US economy.

Crude prices broke through $78 a barrel on Friday, as the military onslaught in Israel and the Lebanon intensified. On Wall Street, the Dow Jones index lost almost 400 points in the last three days of last week, and analysts fear worse to come.

'Investors often start to panic when bullets start flying, and with oil hitting record highs, it doesn't do any good for confidence,' said Peter Dixon, economist at Commerzbank.

Oil analysts warn that if Iran throws its weight behind Lebanon and Palestine, oil prices could jump by more than $20. 'Iran exports 2.6bn barrels of oil a day. We don't have that much in spare capacity. I think prices would be heading up further, even to $100, if Iran got involved,' said Kona Haque of the Economist Intelligence Unit. 'These latest developments are just another thing that the oil markets didn't need.'

The oil producers' cartel, Opec, said this weekend that it had 'no control' on the events pushing up prices.

The renewed spike in the cost of crude will hurt US consumers reeling from rising interest rates. Nervous markets were already focusing on a slowdown in the world's largest economy before the Middle East stand-off caused more turbulence.

Mary Novak, energy expert at Global Insight, said this latest jump in oil prices could be more damaging than the increases of the past two years. 'Earlier, one of the reasons we were able to shrug off the higher oil prices was that we were still in an upswing; but now we are in the downswing, and it's much harder,' she said. 'The markets will remain spooked.'

Federal Reserve chairman Ben Bernanke will give his twice-yearly assessment of the economy to Congress on Wednesday, and investors will be combing his words for clues as to how many more times the Fed will increase interest rates, after 17 rises in the past two years.

'He's got to pull a balancing act,' said Simon Hayley of Capital Economics. 'He's got to prove that he's serious about inflation being above the Fed's comfort zone, but I would have thought he wouldn't want to shift market expectations much about interest rates.'

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Some anylists are expecting oil prices to continue to rise and may go as high as $125.00 a barrel by the end of the year.

Soaring oil prices drag stocks down


NEW YORK — Surging oil prices pulled stocks sharply lower for a third straight session Friday, with bland earnings at General Electric and weak consumer data further dampening the economic outlook.

The Dow Jones industrial average tumbled 106.94 to 10,739.35. The blue-chip index fell more than 121 points Wednesday and lost almost 167 points Thursday, and is just 21 points from turning negative for 2006. The Dow has shed 396 points in the past three days.

Microsoft, one of the 30 Dow stocks, added 3 cents Friday to close at $22.29 a share, but ended the week down 4.3 percent. Boeing, also a Dow stock, tumbled $2.34 to $77.25 Friday, ending down 3.4 percent for the week.

Broader stock indicators also declined. The Standard & Poor's 500 index dropped 6.09 to 1,236.20; the Nasdaq composite index declined 16.76 to 2,037.35, a 14-month low.

For the week, the Dow slid 3.2 percent, the Nasdaq plunged 4.4 percent and the S&P 500 sank 2.3 percent.

"I don't think you're going to bring out a lot of buyers in the market after a week like this," Jay Suskind, head trader at Ryan Beck, said of escalating political turmoil in the Middle East, Iran and North Korea. "Uncertainty over the world situation is just too much for the market to have a solid up day."

Crude futures reached an intraday record of $78.40 a barrel as Israel intensified its attacks on Lebanon, raising concerns about potential supply disruptions throughout the Middle East. Crude eventually settled at $77.03 a barrel, up 33 cents, on the New York Mercantile Exchange.

Retail sales fell unexpectedly last month, as did consumer confidence for July. Industrial and financial conglomerate GE's second-quarter earnings matched analyst estimates, but the in-line results troubled investors already concerned that the recent spate of profit warnings was a sign the economy could be headed for a downturn.

Wall Street has slogged through a gauntlet of mounting uncertainties in recent weeks, with concerns about a potential slowdown in the global economy now exacerbated by increasing political turmoil throughout the world. The commotion sent investors running for cover, giving stocks their worst week this year.

Much of the market's worries stemmed from the trend of rising interest rates worldwide, which is expected to curtail spending and foreign investment and drag on economic growth.

Although the recent jump in oil prices have reinforced beliefs that the Federal Reserve will boost rates again at its Aug. 8 meeting, the early wave of downbeat earnings data has spurred fears that the economy is weakening and could buckle beneath higher lending costs.

"I think [second-quarter earnings] will come in slightly above expectations, but that still doesn't answer the question of whether the economy is slowing and what companies are at risk," said Steven Goldman, chief market strategist at Weeden.

In economic news, the Commerce Department said June retail sales slipped 0.1 percent after growing by the same amount the previous month. Analysts had been predicting a 0.4 percent increase.

The University of Michigan said its consumer-sentiment index for July fell 1.9 points to 83. That compares with expectations for a slight rise to 85.5.

GE said five of its six core businesses saw double-digit earnings growth last quarter; the sole loser was its NBC Universal broadcast unit. GE, which met Wall Street's profit and revenue forecasts, nonetheless sank 56 cents $32.11.

I'm in the market for a new car. If this keeps up I may start looking for a horse and buggy.


 ;D ;D ;D