Stocks fall again as oil briefly hits $100 a barrel

With the price of oil flirting with the $100-a-barrel level for the first time in more than two years, stock investors increasingly fear that Mideast turmoil could put the brakes on U.S. economic growth.

Financial markets were spooked Wednesday by signs that the confrontation between Libyan strongman Moammar Kadafi and anti-government protesters was intensifying. Protesters said they seized control of a major city in the western part of the country, while the government was said to be massing fighters around Tripoli, the nation’s capital, in preparation for potential clashes in coming days.

After briefly touching $100 in New York trading, the price of oil for April delivery closed at $98.10, up $2.68 from the day before.

The Dow Jones industrial average slid 107 points, or 0.9%, to 12,105.78, bringing its two-day loss to 285 points, on fears that the deepening unrest in Libya could spread to other major oil-producing countries and disrupt the worldwide supply of crude.

Rapidly rising energy prices could crimp the global economy, particularly the nascent U.S. rebound that carried major U.S. stock indexes to multiyear highs last week.

With consumer spending still restrained by high unemployment, higher gasoline prices could limit how much people shell out at malls, movie theaters and restaurants.

“The recovery is not on firm footing, and until we get on firm footing it would remain difficult for the U.S. economy to absorb the shock of higher oil prices,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y.

Two stocks fell Wednesday for every one that rose on the New York Stock Exchange, but that was a big improvement from Tuesday, when the ratio was 8 to 1.

The Standard & Poor’s 500 index dropped 0.6% while the tech-dominated Nasdaq composite index slumped 1.2%.

Losses were broad-based, with nine of the 10 broad sectors in the S&P showing losses. Industrial, consumer and technology stocks led the way down. Shares of energy companies, which stand to benefit from rising crude prices, were the sole exception, rallying 2%.

Although Libya is the world’s 12th-largest oil exporter, members of the Organization of Petroleum Exporting Countries have said they could make up any shortfall in the country’s oil output.

The greater fear, experts said, is that revolts could rock other countries, such as petroleum giant Saudi Arabia.

If political strife halts exports from Libya and neighboring Algeria, crude could soar to $220 a barrel, according to an estimate by Nomura Holdings Inc. reported by Bloomberg News.

Some investors, however, said stocks were due for a setback after their largely uninterrupted climb since late last year, and they predicted that the ultimate damage to the market from the Mideast would be minimal.

“The stock market’s actually taking it pretty well,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.

“We may be facing a correction, but for the typical investor to sell now and hope to get back in later after a low, I’m not sure they would find themselves any better off,” Bollinger said. “This looks like it’ll be a relatively minor bump in the road, the type investors ought to ignore.”

Brian Wesbury, chief economist at First Trust Advisors in Wheaton, Ill., said the impact of higher oil prices on the economy would be smaller than many fear because spending on energy is relatively low in historical terms.

For every $1 that Americans spend, 5.8 cents goes toward energy, he said. That’s up from four cents in 2002 — but is down from 1960 to 1987.

“I don’t see how Apple sells fewer iPads, no matter what happens in Libya over the next few weeks,” Wesbury said.

walter.hamilton@latimes.com