Crude oil settled below $34 per barrel for the first time in two months on Thursday (February 12). Crude fell to $33.98 after falling by $1.96 during New York trade. The price of a barrel of light sweet crude has dropped by 20 per cent just since Monday. Uncertainty over the ability of the $789 billion bailout on the table to spark the economy and increase energy demand prompted Thursday’s fall.

Along with instability in the economy and weak energy demand, reports of a strong supply of US crude reserves has helped keep prices down. The inventory report from the US Department of Energy showed that US supplies of crude have reached an 82-week high.

Contrary to the trend in recent months, fuel prices have not followed the price of oil downward. Oil and gasoline moved in virtually perfect unison during the steep declines from mid-January through the start of 2009. Retail gas reached a high price point for 2009 on Thursday, though, and expectations are that a return to $2 per gallon is in order due to reductions in refinery production.

Fuel was up 1.2 cents overnight to $1.95, according to AAA and the Oil Price Information Service. Gasoline is up by 34 cents from December 31st. Still, the price of a gallon of gas is $1.02 less than it was at the same time a year ago and over $2 below the all-time high over $4 reached during last July.

A drop in jobless claims had little effect on the market sentiment in early morning trade. Jobless claims fell to 623,000 from an upward revised 631,000 last week. Still, the claim’s report was above the 610,000 claims that were expected. The final numbers kept claims near a 26-year high.

The bright spot in the economic picture Thursday was a surprising one per cent increase in retail sales during January. The monthly increase helped put an end to a trend of six straight months of sales declines. Although the end of a lengthy streak of down months is positive, most analysts are quick to point out that retail is still in for a fight. Some point to a rise in gasoline prices during January as the main reason for the change in retail sales data.

Debate over the potential impact of a finalized economic stimulus is still waging in Washington and in the press. Many congressional Republicans still believe there is too much non-impacting money in the bill. Proponents of the Obama plan have built up the idea that it could create around 3.5-4 million jobs. However, more pessimistic pundits argue that it could be months or longer before such a turnaround goes into effect. The timing of the economic impact of the stimulus has been at the heart of much of the debate. Some believe there are too many expenditures that will have delayed results.

It will be interesting to see how investors and consumers respond to the development of the stimulus package as details are finalized. A late day recovery in stocks came after news that the Administration had plans to work in a mortgage recovery facet to the bailout. This would include subsidized mortgage assistance for qualified homeowners struggling to keep up with payments.

Market Recap

As final agreements were made over the new economic stimulus plan, stocks worked to a modest rebound from Tuesday drop. The Dow gained 50 points and the NASDAQ and S&P were up 5 and 6 points, respectively. Stocks staged a huge turnaround on Thursday after an early drop of 200 points. Worries about the stimulus plan prompted the early fall. News of mortgage subsidies for struggling homeowners sparked the paring of losses. The Dow lost 6 points with the NASDAQ and S&P up 11 and 1. Retail sales had an unexpected rise in January. Oil dipped near multi-year lows.

Neil Kokemuller
11:43 PM EST
Thursday, February 12, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.