Oil rises unsettle investors in US

A renewed rise in oil prices stifled a rally on Wall Street today, leaving stocks mixed and investors worrying that costs will climb further despite Saudi Arabia’s vow to boost production.

Even if the kingdom can increase production, higher supplies aren’t likely to reach the United States in time for the peak summer driving season. On the other hand, higher prices at the pump could put a damper on the nation’s economic growth and make it more likely that the Federal Reserve will delay interest rate increases.

The Dow Jones industrial average fell 8.31, or 0.08%, to 9,958.43.

In addition to investors’ economic concerns, the blue chips were pulled down by the sharp drop in Altria Group shares after a federal judge ruled the Department of Justice will be able to seek the disgorgement of tobacco industry profits as part of its suit against Philip Morris USA and other cigarette makers.

Broader market indexes closed up. The Standard & Poor’s 500 index advanced 1.78, or 0.16%, to 1,095.34, while the Nasdaq composite index was up 26.39, or 1.4%, at 1,922.98.

Barry Berman, head trader for Robert W Baird in Milwaukee said that despite some positive news on oil, investors lacked direction.

“I think the market is basically wrestling with the fact that it’s had a good correction and that a lot of the selling is over with, based on the news we know,” Berman said. “But I think it is waiting for some good news to get going on the upside.”

He noted that volume was light ahead of Memorial Day – that tends to magnify market movements.

Investors looking for good news to peg buying on initially bid stocks up in reaction of the weekend pledge by Saudi Arabia – the world’s largest crude oil exporter – to increase its output by up to two million barrels a day.

US Energy Secretary Spencer Abraham said yesterday Saudi Arabia has promised to pump an additional 600,000 barrels a day starting in June, lifting its daily output to 9.1 million barrels. Saudi officials also agreed to meet market demand up to their full capacity of 10.5 million barrels going forward, he said.

But analysts worried that it would take time for the kingdom to boost production, and there were signs that other Opec members were angered by the Saudi’s intention to go it alone after the cartel rejected calls for higher production.

In fact, crude oil futures ended up 4.5% today at their highest settlement in more than 20 years of trade on the New York Mercantile Exchange. Nymex crude futures for July delivery closed at 41.72 dollars a barrel, surpassing the previous high of 41.55 dollars a week ago.

The sharp upward moves unsettled investors.

“Whether it’s professional investors or Joe Sixpack, it’s an alarming event when it used to cost you 20 dollars to fill your car and it now costs you 30 dollars,” said Arthur Hogan, chief market analyst at Jefferies & Co.

He added, however, it’s likely most concerns about the broader economy will not eased by a Saudi move.

Advancing issues outnumbered decliners by a 5-to-2 ratio on the New York Stock Exchange, where volume was lower than usual.

The Russell 2000 index of smaller companies was up 5.91, or more than 1%, at 551.72.