Energy Stocks Plummet, Succumb to Bearish Sentiment

Very high and very volatile energy prices, coupled with the fear of what they will do to overall economic growth, were among the main reasons cited by energy analysts that energy companies of all shapes and sizes were out in front of the U.S. stock market dip over the last two days.

The declines hit E&P independents such as Coastal Corp., which registered nearly a $10 drop Wednesday and Thursday to slightly more than $73; Anadarko Petroleum, which fell about $8 to $59.50; Exxon-Mobil, down about $5 to $88; and Chevron, off about $4 to $82 Thursday. Lower in the price range, Conoco dropped a dollar to about $25.

Coastal's merger partner, El Paso registered an $8 decline over the two days to close just over $60 yesterday. Farther downstream, companies suffered only small price drops (Reliant) or small gains (KeySpan). Williams, with a telecommunications component, dropped about $5 to close just over $35.

Enron, the target of rumors about less than expected earnings --- which the company vigorously denied in an unprecedented press release last Friday --- registered a $14 drop to near $65 in the two days.

Among power producers, Dynegy fell just about $5 to land near $44; Calpine was down about $5 to close to $35 a share and AES dropped about $4 to end near $52.

Duke Energy bucked the trend, rising about $4 over the two days to nearly $90.

With natural gas and oil prices at the highest level in years, the fall-off left many scratching their heads. But, those super-high prices may be what has spooked the market. The commodity prices and the stocks of the companies profiting from them, which have risen steadily over the last six months, now have nowhere to go but down, and with the economy slowing, the drop could be precipitous. Part of the psychology has to do with the lack of precedents --- of being where no one has gone before.

In the natural gas market, several bidweek traders yesterday said they could hardly believe themselves the high-priced deals they had just done, particularly at the California border. "These prices will bring back regulation," one marketer said. There already are reform movements and lawsuits pending in California that would do just that.

Another pointed to the impact on the baseload industrial markets, where chemical and aluminum companies are voting with their feet. Reports of cutbacks by other industrials were multiplying. In California one purchaser said if gas prices went any higher they would start to shut in the more inefficient gas-fired power generation because with the $250 cap on power prices, there would be no margin left.

"Any company where their energy cost is a significant portion of their total costs has to be backing off. This is going to cut into demand and eventually into prices." A fall in prices could translate into a loss of confidence, and lower stock prices for the companies that produce, transport and distribute natural gas and power.

The altitude that energy commodity and common stock prices have reached in recent months and the fear of a decline that could be very swift and very deep with a corresponding impact on earnings, have led some investors to take some of their oil and gas company gains off the table, analysts said. "How long can oil prices stay in the $35 range, and how low will they go?" one market watcher questioned.

Also to blame is the general market malaise stemming from the political turmoil in the U.S., sharply lower GDP growth numbers released by the Commerce Department Wednesday, and lowered economic expectations around the world, which have affected the overall stock market.

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