The shutdown of a major Alaskan oil field sent oil prices to near record levels Monday (Aug. 7) and prompted investors to sell stocks on inflation fears, one day before the Federal Reserve’s next decision on interest rates.
The Associated Press reported that BP Plc said late Sunday it would shut down the Prudhoe Bay oilfield, which represents 8% of daily U.S. crude production, due to possible pipeline corrosion.
As a result, crude oil futures surged $2.22 to $76.98 a barrel on the New York Mercantile Exchange – near the closing record of $77.03 and all-time intraday high of $77.40, both set July 14.
The markets showed some resiliency in the face of higher oil prices, as many investors held out hope that the Fed would not raise rates Tuesday. Nonetheless, there are concerns that even if the Fed stops, the economy is still slowing down, and that inflation may yet become a concern.
“Whether or not the Fed pauses in August is not as important as their plan going forward,” said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. “I don’t think the market’s going to get the kind of finality it’s looking for. The concern is, yes, they pause in August, but raise the specter of raising rates in September.”
The Dow Jones Industrial average fell 20.97 to 11,219.38. Broader stock indicators also dropped. The Standard & Poor’s 500 index lost 3.59 to 1,275.77, and the Nasdaq composite index shed 12.55 to 2,072.50.
The market’s modest move lower on very light trading volume showed investors’ willingness to wait and see what the Fed will do Tuesday. There’s also evidence to support stocks’ overall resilience to rising oil prices.
“If you plot the S&P 500 against oil prices for the last two to three years, they’re both rising,” said Brian Gendreau, investment strategist for ING Investment Management. “Now, certainly, if oil prices stay this high, consumer spending and earnings are going to be hurt. But for now, I think we’re hanging in there today because we’re actually enjoying some rationality.”