- The Washington Times - Wednesday, September 22, 2004

Stocks plummeted as the price of oil surged to $48.35 a barrel yesterday — within a dollar of oil’s record high.

The Dow Jones Industrial Average plunged 136 points to 10,109 after oil soared on evidence that the shutdown of Gulf of Mexico drilling facilities last week when Hurricane Ivan moved through forced oil companies to dip deeply into their dwindling stocks of oil.

The renewed downturn in the stock market caused by oil, its biggest bugaboo this year, reverses what many analysts considered a budding end-of-year recovery on Wall Street that is needed if the stock market is to end up in positive territory for the year.

High oil prices, which peaked at a record $49.40 a month ago, are taking a big toll not only on consumers but on major U.S. corporations such as FedEx, whose stock was trampled yesterday on worries that soaring jet fuel prices will prompt a loss of customers to cheaper ground-carrier services. Airline stocks also are suffering because of soaring jet fuel costs.

“We got hit with high oil prices and hurricanes,” said Nick Calamos of the Calamos Growth Fund. “That slowed the markets and the economy down a little bit.”

The Federal Reserve “called it a ‘soft patch,’ but we’re wondering if it’s more like a Texas-sized ranch” that hit the economy this summer, said Jon Brorson, stock manager at Neuberger Berman Inc.

Oil analysts say premium crude prices, having largely retraced their retreat since August, may now be poised to top $50 as news of increasing geopolitical turmoil, including threats to Yukos oil supplies in Russia, threatens the buildup of stockpiles needed for the peak winter heating season.

“The trend in oil prices shows no sign of turning,” said Jason Schenker, economist at Wachovia Bank. “The run-up in the price of oil is far from over.”

Mr. Schenker said the 9.1 million-barrel drop in oil stockpiles last week reported by the Energy Department yesterday was “one of the largest week-on-week draws in history” and comes on the heels of a major drawdown of oil stocks this summer that has left inventories at lean levels not seen since February.

Federal officials said that oil inventories are now well below levels normally seen at the start of the home heating season — a development that, along with oil’s lofty levels, means that heating oil prices for Americans are likely to soar to new highs this winter.

Hurricane Ivan was one of the largest storms in years to cross over critical U.S. oil-producing facilities in the Gulf of Mexico, which now supply a quarter of the oil Americans consume. It not only caused the temporary shutdown of drilling operations but it temporarily blocked critical imports of oil from arriving on the Gulf coast.

With the hurricane season barely half over, oil traders are nervously watching another system, Tropical Storm Jeanne, which appears headed toward the Gulf after wreaking havoc in Haiti.

Oil deliveries from the Gulf coast, long a mainstay in the U.S. market, will grow even more important in the future as much of the new drilling for oil and gas is occurring in deep-water areas of the Gulf.

A second report yesterday from the Energy Information Administration shows that even though drilling activity is up in the Gulf, U.S. energy firms are not exploring and drilling enough overall to replace declining production of crude in the United States.

U.S. proven crude oil reserves fell last year for the first time in five years, as energy companies replaced just over half the oil they took out of the ground.

U.S. crude oil reserves stood at 21.891 billion barrels in 2003, down 3.5 percent from 2002.

The majority of new discoveries of oil were from new offshore fields in the Gulf. The North Slope of Alaska, normally a major contributor to new oil supplies, “had no significant impact” on total U.S. oil discoveries in 2003, the agency said.

The new report is likely to add to the debate over opening up Alaska’s Arctic National Wildlife Refuge to oil drilling because it points to the need for even greater reliance on imports of oil.

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