The Dow Drops Again, But Chevron, ExxonMobil Climb
The Dow Jones Industrials had fallen 64 points as of 11 a.m. EDT Thursday, adding to a triple-digit loss from Wednesday. Market participants focused on figures that showed that retail sales rose just 0.3% in May, although revisions to prior months supported the contention that the U.S. economy bounced back sharply after declines in the early winter months. Relative weakness outside the auto sector raised some concerns, though, and rising levels of conflict in Iraq created new fears of uprisings that could disrupt the Middle East. Even though those problems sent the Dow lower, they helped boost shares of Chevron and ExxonMobil today.
Good news, bad news
Iraq has dealt with instability for decades now, but recent uprisings have taken on a new level of urgency, and oil markets are feeling their impact around the world. Insurgents from the northern part of the country are moving toward the capital of Baghdad. With reports suggesting the insurgent groups might be supported by the al-Qaida terrorist organization, some believe that the fragile nation might be starting to disintegrate. The national Iraqi military has been ineffective in maintaining order, with Kurdish forces having taken control of the northern city of Kirkuk.
Iraq is the second-largest oil producer in OPEC, and threats to oil supplies have predictably sent oil prices higher. Brent crude rose more than $2 per barrel to $112, while West Texas Intermediate rose above the $106 level. Higher prices support profits for Chevron's and ExxonMobil's upstream exploration and production divisions, and some smaller energy producers are seeing even bigger gains.
Of course, conflict in the Middle East isn't all good news for ExxonMobil and Chevron. Both Dow components have agreed to drill exploratory wells in the Kurdish region of Iraq, and the loss of those opportunities because of armed conflict in the area would be a blow to their growth prospects. Moreover, ExxonMobil has long had a presence in the southern part of the country, although controversy between the Iraqi national government and the semiautonomous Kurdish government has raised tensions with major oil companies doing business in Iraq outside the Kurdish area.
If conflict escalates, then ExxonMobil and Chevron stocks could continue to rise even as the Dow could give up further ground. At some point, though, rising oil prices might start hurting overall economic activity, and that could be negative even for the Dow's biggest oil stocks.
Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.
The article The Dow Drops Again, But Chevron, ExxonMobil Climb originally appeared on Fool.com.Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.