The shutdown of a major Alaskan oil field sent oil prices sharply higher on Monday and prompted investors to sell stocks on inflation fears, one day before the Federal Reserve’s next decision on interest rates.
BP plc said late on Sunday it would shut down the Prudhoe Bay oilfield, which represents 8% of daily United States crude production, due to possible pipeline corrosion. As a result, crude oil futures surged $1,89 to $76,65 a barrel on the New York Mercantile Exchange.
The spike in oil prices weighed on investors concerned about another rate hike from the Fed. While the economy is slowing, leading many analysts to declare that the Fed would not raise rates on Tuesday, there’s concern that rising energy prices could lead to broader inflation or a halt to economic growth.
”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 spectre of raising rates in September.”
In midday trading, the Dow Jones industrial average fell 29,14, or 0,26%, to 11 211,21.
Broader stock indicators also dropped. The Standard & Poor’s 500 index lost 2,79, or 0,22%, to 1 276,57, and the Nasdaq composite index shed 11,46, or 0,55%, to 2 073,59.
Bonds lost ground as well in advance of the Fed meeting, with the yield on the benchmark 10-year Treasury note rising to 4,92% from 4,9% late Friday. The dollar rose against most major currencies, while gold prices fell.
Shares of BP lost $1,32 to $71,22 on the Prudhoe Bay shutdown, which would take away 2,5% of the company’s total daily production. BP Prudhoe Bay Royalty Trust, which manages the oilfield’s business on behalf of BP and others, tumbled $10,79, or 12%, to $77,10.
Rival oil producers saw modest gains, however, as investors believed they would benefit from the spike in oil prices. Hess rose 27 cents to $52,27, while Chevron climbed 60 cents to $66,26.
In earnings, power producer AES said its quarterly profit nearly doubled due to higher electric prices and better revenues across all its businesses. AES gained $2,38, or 13%, to $20,63.
Oil and gas explorer and transmitter El Paso fell 71 cents to $14,86 despite posting a profit after a year-ago loss. The company beat Wall Street’s earnings forecasts by a penny per share after one-time gains.
Comic-book publisher Marvel Entertainment said its licensing deals, a lucrative part of its overall revenue stream, slumped in the second quarter, though its profits still beat analyst expectations. Marvel rose $1,02 to $19,12. — Sapa-AP