Oil company shares falling sharply with oil prices

A drop in oil prices stoked by economic fears sends oil company shares lower

Associated Press

NEW YORK (AP) -- Shares of major oil companies tumbled Thursday along with the price of oil.Oil company revenue and profits are closely tied to the price of oil, which is set by traders around the globe. Oil fell more than 5 percent to $81.35 per barrel after government officials said they are worried about a weak U.S. economy.Shares of Chevron fell $4.40 to $89.87, a drop of 4.6 percent. ConocoPhillips shares lost $2.22 to $62.73, a drop of 3.5 percent. BP fell $1.29, or 3.5 percent, to $35.61. ExxonMobil shares also fell more than 3 percent, dropping $2.33 to $69.64.The Dow Jones industrial average lost 3.4 percent, while the broader S&P 500 index dropped 3 percent.Smaller drillers suffered bigger losses. Hess fell $4.60, or 8.1 percent, to $51.89. Occidental Petroleum fell $3.54 or 4.6 percent, to $72.78Oil prices have fallen about 9 percent in the last week. The concern is that drivers, airlines and shipping companies will burn less gasoline, jet fuel and diesel to commute, vacation and ship goods in a weak economy.International oil officials said recently that oil demand in China is growing slower than they expected. Demand in Europe is weak, a result of the ongoing debt crisis there.Worldwide, oil demand is still expected to set a record this year, propelled by rising demand in Asia and developing nations elsewhere. Oil reached nearly $114 per barrel in late April on forecasts of strong demand growth and fears that upheaval in the Middle East would remove oil supply from the market.But demand growth has slowed and producers have been able to keep the market well supplied with oil. That has led to a decline in prices.The cost to oil companies of pulling oil from the ground does not fluctuate dramatically from year to year. When oil prices are high, oil company profits grow. But when oil prices fall, profits quickly erode.Big, so-called integrated oil companies such as ExxonMobil and Chevron also earn money from their sprawling refining operations that turn crude into fuels and chemicals. The profits of these divisions are less sensitive to oil price fluctuations, but the operations on the whole are far less profitable than finding and selling crude.

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