By Roger Choudhury and the Investment Underground editors
We searched for exploration and production (E&P) companies with undervalued natural gas reserves. We think Exxon Mobil's (XOM) purchase of XTO, in addition to the flurry of deals completed by Chesapeake (CHK) has put a floor on valuations, going forward. The best deals around include the lowest cost producer in Marcellus, Range Resources (RRC), and Wyoming, Ultra Petroleum (UPL).
We think mixed oil and gas players in the deepwater, such as ATP Oil and Gas (ATPG), are also likely to fare well, given that there remains plenty of commodity price upside from here. GMX Resources (GMXR) and SandRidge (SD) tipped their hats toward oil in the near-term by introducing themselves to significant oil plays. The names we found are below.
GMX Resources (GMXR) announced on January 28 that it would buy 67,724 net acres of horizontal oil resources within the core development areas of the Bakken / Sanish-Three Forks Formation in the Williston Basin (Bakken) and the Niobrara Formation in the Denver Julesburg (DJ) Basin. The 67,724 net acres is includes 26,087 net acres in the Williston Basin, North Dakota and Montana targeting the Bakken/Sanish – Three Forks Formation and approximately 41,637 acres in the DJ Basin in Wyoming targeting the Niobrara Formation. In addition, this provides 342 additional horizontal drilling locations. The purchase is to be made in $1.8 million in cash and up to 2.7 million shares of stock.
The Companyis a smaller operator with around 42,000 net acres in the Haynesville shale in the eastern Texas counties of Harrison, Marion and Panola. At December 31, 2010, the Company‘s total proved reserves are 319.3 BCFE, which a decrease of ~10% from 355.3 BCFE, a year back. However, the Company also announced that year-end 2010 Haynesville/Bossier reserves were 234.1 BCFE, an increase of 208.2 BCFE compared to year-end 2009. This is an increase of 804%. For Cotton Valley Sand, Travis Peak, and other non Haynesville/Bossier reserves, on December 31, 2010, they stood at 85.2 BCFE, which is a decrease of 244.1 BCFE compared to reserves of 329.4 BCFE at December 31, 2009.
Last year, GMXR shifted from vertical drilling in the Cotton Valley Sands to horizontal drilling in the Haynesville Shale. As a result, the company had to remove substantial proved undeveloped reserves from its books on the Cotton Valley due to its switch to the Haynesville Shale below it, cratering the share price. We think a buyout would come in around $700 million on the low end or $12 per share given GMX acreage and infrastructure at current gas prices. Devon (DVN), legacy XTO (XOM), Apache (APA) and EOG Resources (EOG) all have acreage in East Texas and are looking for acquisitions opportunistically. GMXR acreage, with no impending lease expirations and the ability to place well heads near pipelines due to its Cotton Valley experience, is a potential target. You can read more of our explanation of why it’s a buyout target here.
SandRidge (SD) announced on April 4 last year that it will acquire Arena Resources for $40 per share or $6.2 billion. This represented a 17% premium for Arena shareholders. (more)
We don’t especially like numbers here at The Daily Reckoning. You can’t trust them.
But we follow a few of them anyway.
The first number above is for the Dow. The second is for gold. They show us what happened in yesterday’s trading. And yesterday, the first number was negative. The second was positive.
Not that there aren’t a lot more interesting, provocative numbers around. But we only follow the big picture here. And those two numbers tell us most of what we need to know.
At least, they give us a good starting point.
The Dow number is going down because investors are worried. That’s why the gold number is going up too.
What if these Cereal Revolutions get out of hand? What if they spread to Saudi Arabia? What if the price of oil keeps going up?
“Gasoline at $4 a gallon?” asked a headline yesterday.
What would gasoline at $4 a gallon do to the US economy? This is another of those pieces of the puzzle that we mentioned yesterday. Ben Bernanke, who would probably make a fine elevator operator or high school math teacher, knows nothing about economics. He thinks all he has to do is to add more money and the whole “recovery” picture will be complete. Investors will see their stocks go up. Employers will hire. Shoppers will shop. Bakers will bake more. Shoeshine boys will start slapping the leather. Wheelwrights will…well, never mind.
But then, the puzzle pieces change shape. He pumps in money. The price of oil goes up. And food. And the Arabs, who depend heavily on grain imports, get themselves worked up. And then the price of oil goes up more. And stocks begin to fall. And US consumers pay more for gasoline…
…and suddenly, the picture is not at all what the Fed chairman had hoped for.
But wait. It gets worse. Look at that third number. 220. It’s what the big Japanese securities firm, Nomura, thinks the price of oil could reach, thanks to the Cereal Revolutions.
And maybe they’re right. Gaddafi is no Mubarak, say the papers. When he says he’ll fight…he could mean it.
And others are getting ready for a fight too. Saudi Arabia is trying to head off trouble. And reports tell us that China is worried and increasing its security measures.
And what about France? And the USA?
Has your editor lost his mind? Not completely.
“I’ll give you a prediction,” said a smart French woman with whom we dined last night. “What’s happening in North Africa will soon be happening in France.”
“And if you look at how wealth is distributed in the US,” said a companion, “it is really amazing. Something like 95% of the population lives below what we would consider the poverty level here in Europe. I don’t know how they live. It’s only the extremely high earnings of the other 5% that makes the average seem normal. And almost all the new wealth created in the last 10 years has gone to a tiny percentage of the population.
“You and I may know that Ben Bernanke and US monetary policy are largely responsible for the wealth that has been concentrated in the hands of the rich. But the man on the street has no idea. He just thinks it is wrong. And unfair. What is really amazing is that he hasn’t already begun a revolution…”
The Home Depot, Inc. (NYSE: HD) — This home improvement retailer rose from $30 to over $39 following our last buy recommendation in the Trade of the Day on Sept. 14. But the stock is now fundamentally overpriced, and commodity inflation could cut into future profits.
S&P cut their rating to “sell” from “hold,” because compared to their competition, the stock is “overpriced” with “weak growth prospects.”
Technically, HD flashed a Collins-Bollinger Reversal (CBR) sell signal (our proprietary internal indicator) on Tuesday. On the same day, the Moving Average Convergence/Divergence (MACD) registered a bear signal.
Traders should sell current short- and intermediate-term holdings or protect positions by writing options. Short sellers may want to consider HD for a decline to $32-$34.
The nest-egg myth ... Nearly half of today's older Americans receive no income from assets such as stocks and savings accounts. As the debate over the federal deficit heats up, Americans are going to hear a great deal about "greedy geezers" who are supposedly bankrupting the nation with Social Security and Medicare. Politicians will no doubt be more circumspect than former Wyoming Sen. Alan Simpson, who, as the Republican co-chairman of the federal deficit commission, described Social Security as a "milk cow with 310 million tits." The myth underlying these attacks (including Simpson's misogynist bovine metaphor) is that most old people don't need their entitlements — that they are affluent pickpockets fleecing younger Americans. – LA Times
Dominant Social Theme: Invest wisely and well.
Free-Market Analysis: Can one "invest" one's way to prosperity? Some people are very good at stock picking and others can use Austrian business cycle analysis to generally figure out what side of the market to be on during its great turnings (gold and silver would seem to be appropriate for now). But most people have no more success picking stocks or generally investing than they do with other parts of regulatory capitalism.
Let's try to put this long-running power elite promotion into perspective. We don't agree with the LA Time's perspective (see article excerpt above). It's not nest-egg versus Social Security (which the US cannot afford, especially because there are no SS funds, only fancy IOUs). There is a third way, which is to get rid of central banking entirely and let tortured Western economies gradually deflate.
As economies undistort without the endless goad of monetary stimulation, people would gradually begin to be self-sufficient again. Nuclear families would collapse and extended families would reappear; this is the logical solution to old age, not frantic investing leading to the selection of an old-age home where one is likely to be abused before dying.
Before there was financial planning or even "investing" there were stock drummers – so-called customers' men. It is in America, predictably enough, where the idea of putting money into stocks became most popular. It never really caught on in Europe or Britain, where social class stratified opportunity. But in America, a large, freewheeling democracy, the idea of participative capitalism was welcomed.
It started out slowly, under a Buttonwood tree in New York where brokers gathered to trade securities in an auction-like setting that mimicked a French bourse. When brokers went indoors, others gathered at the curb outside to trade smaller lots. Thus the "curb" exchange was born, which later became the American Stock Exchange.
Stock trading didn't really take off until after the Civil War. It was then that the backers of the New York Stock Exchange, presumably the big New York banks themselves (with their European ties), went on a buying spree, purchasing numerous other auction-like exchanges throughout the city and consolidating stock trading downtown.
We have already recited in these pages the evolution of stock trading, from an auction once or twice a day to all-day dealing. The "uptown" boys had developed the new system and the NYSE was so desperate to merge with them that they offered them lucrative franchises in certain stocks if they would agree to a partnership. Thus the specialist system was born.
We've spent time, as well, analyzing what this amounted to. We still remember an Economist article in the late 1980s that solemnly proclaimed the system had emerged naturally as a result of a broken leg that one floor-trader had suffered. Supposedly he couldn't walk around and thus began to "specialize" in a single stock. Others gathered round finding his exclusivity to be both liquid and efficient, and thus was history made.
In fact, as we've just pointed out, the system was a bribe to effectuate a merger. As soon as the merger was made, the NYSE, too, switched to continuous trading, which was far more lucrative for the broker. It was also enormously lucrative for the specialist, who was exposed to the volume and liquidity of his assigned companies in far more detail than anyone else.
Over time, the specialist's advantage was whittled away by various rules and regulations, but the advantages remained nonetheless. Even in the late 20th century, just before the system was basically abolished, specialists still had an advantage, especially in the morning when they had to set the opening price – and could do so based on the volume of trades and indications of interest from the day before. It was like shooting fish in a barrel and it was LEGAL. Specialists were OBLIGED to make trades (basically front-run their own book) to keep an "orderly market."
Of course it was never exactly clear how small Mom-and-Pop specialist shops with limited capital were supposed to keep such a market in hugely capitalized stocks like IBM or Exxon. The buying and selling would inevitably overwhelm even the most courageous small-time specialist during times of crisis. But logic never mattered on the NYSE; the larger, intricate presentation was set up to take advantage of the buying public and to sell a concept of wealth and potential riches that could not be obtained anywhere else except in a casino or lottery.
It was built deliberately in America bit by bit. The consolidation of the NYSE was buttressed in the late 1800s by the advent of the first, great "wirehouses" – so called because they allowed customers to buy and sell stock via telegraph. The advent of the Federal Reserve, which could – by printing endless amounts of fiat money – create great capital surges that could send American equity markets soaring.
The 1929 Crash shattered the system and it took until the 1950s for Wall Street to get it back on track. Eventually the braintrust at the NYSE grew so desperate it mounted a series of road shows around the country to convince Depression-scarred, war weary Americans that stocks could be a profitable adjunct to bonds. The road shows and America's growing prosperity fueled stock trading once again.
Federal Reserve money-printing and the post-war strength of the dollar began to drive marts upward, ever upward. There was a glitch in 1963 and then a major crash in 1969, but the combination of Fed money printing and consolidated stock trading continued to carry the day, especially after the US went off the gold standard and the Fed was freed to print money at will.
The 1970s were an up and down time for stocks in America, but in the 1980s the Fed/NYSE combination drove stocks up to lofty valuations. The 1987 crash derailed things for a while, but the 1990s and the tech-boom put stock trading back on track. The system worked well until later in the first decade of the 2000s when the incessant money stimulation finally caught up to both the markets and the larger economy. As we have long pointed out, the dollar-reserve system died in 2008, along with the popular belief that one could count on "investing" for retirement.
It was never a reality; it was fiction. Stock markets go up because of the way the system has been built. Central banks and modern stock markets are the two halves of an efficient, middle-class money-extraction mechanism. Prompted by money stimulation markets run up and – in America anyway – suck consumers' money into "opportunities." Then the market crashes, the valuations are diminished, jobs are lost and the contraction begins. Many who cannot stand the losses, psychologically or otherwise, sell out at the bottom – much as they have bought at the top – and the contraction of the middle classes continues apace. Lives are destroyed and families' hopes and dreams are ruined.
The late 20th century saw myriad elaborations on the "invest your way to wealth" dominant social theme, especially in the States. Cable news programs incessantly propounded buying opportunities, as did dozens of magazines and newspapers. Stock picking gurus became national heroes and various kinds of strategies were offered to the general public, from technical investing to financial planning. All of this was merely froth on the waves of systemic money stimulation; but it is hard to remain cool and uninvolved when your neighbor has just purchased an expensive car with some of his winnings.
Conclusion: And yet ... it was a Dreamtime, a fantasy propounded deliberately by the elite to continue the process of centralizing Western economies without being too obvious. This is not to say that "investing" and stock manias are going to go away. The latest round of exchange mergers shows us clearly that the game is still afoot and that those behind it have ever-larger plans. But something has changed in our opinion. The certainties of the 20th century have given way to the skepticism of the Internet era and it will take an enormous reliquification of global markets to spark another mania worldwide or even in America. It may even take a new monetary system.
Due to the recent Middle East unrest, crude oil and natural gas have become even more dislocated. As of the time of this writing, crude oil is trading around $99/barrel, while natural gas is trading at $3.842/mmbtu
From a strictly scientific standpoint, 1 barrel of crude oil should cost about 5.8 times 1 mmbtu of natural gas, because 1 barrel of crude oil has 5.8x as much energy content as 1 mmbtu of natural gas. However, for various reasons, this ratio does not hold true. The natural gas lobby in Washington is not very popular, so even though the US could be thought of as the “Saudi Arabia of Natural Gas,” our country does not really support it for political reasons. Instead, our politicians support coal and continued oil usage, while publicly claiming they want to end our dependence on foreign oil. If there was real initiative, the US could be completely energy independent, but this digresses from our real goal: analyzing macroeconomic trends to make sound investments.
The Crude Oil Natural Gas Ratio
The below chart shows the ratio of crude oil to natural gas in white, and the price of natural gas in amber.
As can be seen, aside from a brief return to reality in late 2008, from about mid-2007 onwards, the ratio of crude oil to natural gas has been extremely high. Natural gas is pretty much the only commodity in the world that has not recovered since the 2008 financial crisis, and it trades at about the same levels it traded at in 2002.
A large reason for crude oil’s outperformance is due to the global nature of the crude oil market vs. the domestic natural gas market. Since crude oil is a much more international market, it receives the same bid that precious metals receive as an inflation hedge. This phenomenon can be seen when considering that institutional investors typically allocate 1% of their portfolios to crude oil, but none to natural gas.
The last time the ratio was this high was September 2009, and natural gas proceeded to rally 138% until the end of 2009. While much of this was due to the front month expiration and contango in the natural gas curve, one still could have made 68% being long the front month contract and rolling it over each month.
Historical Comparison
The chart above shows statistics on the ratio between natural gas and crude oil over the last 11 years. As can be seen, the highest ratio seen was 26.35 in late August 2009. The ratio as it currently stands is 26.11.
Additionally, the current reading is in the 99.82nd percentile of readings over the last 11 years, meaning that it is almost the highest reading ever seen. Considering that the median reading was 9.02, the current ratio stands almost 200% higher than the median.
CFTC Commitment of Traders Report
The chart below shows the Managed Money net short position over the last 5 years.
As can be seen, the amount of net shorts from Managed Money has increased drastically in the past month to a current reading of 173,434 net short contracts. This reading is in the 5th percentile of readings over the last 5 years, and almost twice the median.
Because so many traders are short natural gas, any sustained rally off the bottom should trigger extensive short-covering. This would make a rally of 10-20% not out of the question.
Trade Recommendation
Usually when witnessing this large a disparity, I would recommend a trade to short the perceived overvalued commodity and go long the undervalued. However, because I believe in crude oil in the long-term for macro reasons, I would not recommend a short position in crude oil. Rather, I would recommend being long both, but with an overweight bias towards natural gas. Being short crude oil may provide a false sense of security as an inter-commodity spread hedge, but because the 2 commodities trade on entirely different rationales, this is not an appropriate trade.
Our recommendation is to sell puts on natural gas, as well as buy the futures contracts outright if you can stomach the volatility. Because natural gas is such a depressed and volatile commodity, put options on it are expensive, making their sale an attractive risk/reward scenario.
For example, the June 3.65 puts (expiring on May 25th) could be sold for $0.11, or $1,100 per contract. With June natural gas trading at $3.983, this means the trader would keep 100% of the premium collected as long as natural gas does not fall an additional 8.4% in the next 3 months. While 8.4% is by no means a huge cushion, considering natural gas has already fallen 14% for the year, we would think that a floor must be put into natural gas in the near future.
We continue to be short natural gas put options and long natural gas futures, and will add opportunistically on pullbacks.
From Paul Mylchreest's latest must read Thunderroad Report
Gresham’s Law Squared - gearing up for Game Over (pdf)
It’s getting serious, Gresham’s Law is kicking in and this isn’t any “run-of-the-mill” Gresham’s Law either – it’s “Gresham’s Law Squared”. Not only is there huge hoarding of gold and silver, but it is being compounded by the simultaneous transformation of the gold and silver markets themselves. Having been dominated by paper claims to bullion, all that matters now is ownership of the physical metal itself. The price of gold and silver on your Bloomberg screen is actually a HYBRID price of physical bullion and a larger amount of “paper” bullion, e.g. unallocated gold and silver, exchange traded futures, OTC derivatives and some ETFs. The paper bullion price and the metal price are still the same, but this market structure (which had successfully channelled much of the demand away from physical metal) is now breaking down.
When the screen price accurately reflects the prices of physical gold and silver per se, they will need to be FAR higher than you see today. Right now, the frontline in the battle between “real” money and paper currency is in the silver market, but most remain blissfully unaware of the significance of what is taking place. The world’s financial system, as currently configured, is falling apart. The vast majority, including bankers and brokers (who should know better), don’t appreciate it – a sort of tragi-comedy really. The bubble this time is in the money, so nobody will be spared. Buying gold and silver is the fear AND greed trade!
So here we are, waiting for the “event” which triggers a loss of confidence across the system. Will it be a sovereign, a US state, a bank, QE3 or QE5, the oil price, Chinese fixed investment, a false flag event (a convenient distraction/excuse) or a revolution? When it happens, the speed at which capital will move in today’s over-liquefied world will take people’s breath away. Where will it go? This is the global end of normal (baby) so that, first and foremost, it will go into the strategic assets - gold/silver, energy, food/agriculture, rare earths, etc, (as well as the equities of the financially strongest economies).
Bernanke’s QE2 is nothing short of economic warfare, in the form of a wave of inflation, directed at the rest of the world and even his own population (at least anybody without a large stock market, commodities or precious metals portfolio). This inflation is not temporary, as per the false reassurances, it’s baked in. Here is Martin Armstrong recently talking about the US budget deficit:
“A friend of mine on Capitol Hill, among others there, tells me there is no solution whatsoever until there is a MAJOR crisis”
In response, creditor nations have no other choice than to cut purchases of US Treasuries (China is selling), leaving the Fed increasingly standing alone. Rampant or hyperinflation results from the complete loss of confidence in a currency and we are being steered in this direction by the gentlemen above. Sure, they are smartly dressed, well educated (kind of) and pretend to know what they’re talking about with their carefully worded “policies”. It’s all NONSENSE. All they’re doing is leading us down a well-trodden path which has happened time and again throughout history.
In the meantime, there is evidence that the correction in gold and silver prices during January/ early-February-2011 only accelerated the process of Gresham’s Law Squared. In this scenario, buying some junior gold and silver exploration & development plays could translate into “Gresham’s Law Cubed”. These stocks should have the greatest leverage to bullion prices in the medium term if they execute well and big funds, as well as retail investors, increasingly buy in. Examples from the 1970s prove this in spades – I wish I’d owned the “5,000 bagger”. I’ve cut back some positions in some major gold and silver companies to fund small positions in a string of these (admittedly risky) juniors. I already had positions in ECU Silver and Fortuna Silver mines, which are development plays/early producers, and I’ve bought some South American Silver, Bear Creek Mining, Vista Gold, Minco Silver, Gold Bullion Developments, Arian Silver, Axmin, PC Gold and Majestic Gold.
Like wild dogs which have been cornered, our central banking friends are likely to strike back at some point, since gold and silver are their mortal enemies. So expect the unexpected. The enemies of gold and silver are twofold, benign economic conditions and rising real interest rates. The former is not on the horizon, so they might try to bluff the market into believing the latter - for a while anyway. We all know that they are well behind the curve on inflation. So don’t be surprised if, for example, a manipulated Non-Farm Payrolls (unemployment) report out of the US is used as the catalyst for a (small) coordinated rate rise across the US, UK and Europe. The problem for these gentlemen and their political brethren is their insane policy of trying to solve a debt crisis with MORE DEBT. We are already past the point of no return in the current monetary system and anything other than a very modest rise in rates will only bring systemic collapse sooner rather than later. Hu Jintao was only stating the obvious on 17 January 2011 when he said that the dollar reserve system is a “product of the past”. The bark of these wild dogs (and “monetary drug dealers”) is much worse than their bite.
If you think about it, the whole basis of world finance and the world economy as we know it - and all those millions of forecasts for corporate earnings and economic data generated by legions of analysts in investment banks - are based on one critical assumption. It all hinges on the “greater fool theory” continuing to apply to buyers of US Treasury bonds (and the debt of other western governments along with Japan) and that a demonstrably insolvent US government can continue to find “investors” prepared to lend it gargantuan amounts of money. Kick away the rotting foundations beneath the world’s reserve currencies and everything changes.
Do you remember the bit in the movie, “The French Connection”, where the mobsters bring in “Howard the chemist” to test the purity of the smuggled heroin. Howard puts his apparatus together, heats up the “testing material”, and comments as he watches the mercury rise: “Blast off: one-eight-oh…Two hundred: Good Housekeeping seal of approval. Two ten: US government certified. Two twenty: lunar trajectory, junk of the month club, sirloin steak. Two thirty: Grade A poison...(the mercury finally hits 240) Absolute dynamite! Eighty nine per-cent pure junk. Best I’ve ever seen.”
How about “Triple A-rated” poison instead of Grade A poison?
Just as “strange women lying in ponds distributing swords is no basis for a system of government” (quoting Monty Python), the greater fool theory shouldn’t inspire confidence in our current financial system, but it should inspire a response. Gresham’s Law is global, are you in or out?
The price of oil has once again begun to move higher due to unrest in Libya. Many investors are starting to pay closer attention to energy stocks and within this category are a small number of stocks that trade at less than $10 per share. Investors love to buy "cheap" stocks, so here is a list of five strong energy stocks currently trading under the $10 watermark.
Midwest Oil Kodiak Oil & Gas Corp (NYSE:KOG) is an independent oil & natural gas company that has acreage in the Williston Basin and Green River Basin located in the north Midwest. The land explored gives the company access to the larger and better-known Bakken Basin that is highly sought after. The company has a forward P/E ratio of 17.26 and is trading at the best level in its history. A move higher is reasonable given the global economic conditions.
Bullish Energy FX Energy (Nasdaq: FXEN) is a U.S.-based company that has its principal exploration and production facilities in the Rotliegend sandstones in Poland. The company also has smaller acreage in Montana and Nevada. FXEN trades with a forward P/E ratio of 37 and has had an impressive rally over the past several months. The stock price is currently hovering around the $10 mark, which makes it an interesting candidate for an energy investor's watchlist. (For more, see Oil And Gas Industry Primer.)
Tapping Mountain Resources Warren Resources (Nasdaq:WRES) is an independent energy company that primarily develops coalbed methane and natural gas properties in the Rocky Mountain region. The stocktrades with a forward P/E ratio of 21 and recently from its high of $6.16 on heavy volutme. There is strong support in the $4 area and no significant resistance, until it gets to the double-digit area.
Energy Overseas Vaalco Energy (NYSE:EGY) is an energy company that acts as an operator of consortiums internationally in Gabon and Angola as well as minor interests in the Gulf Coast area. The stock has a very low forward P/E ratio of 12 and technically is trading in a consolidation pattern after a big rally in November. The big time resistance is near $10 where the stock hit an all-time high in 2006.
Most Attractive Gran Tierra Energy (NYSE: GTE) is a Canadian independent energy company that explores for and produces oil and natural gas in Colombia, Argentina, and Peru. The company trades with a forward P/E ratio of 19 and has been steadily climbing higher since July. The chart pattern is very strong and the exposure to the Latin American emerging markets is also a bonus. (For more, see Going International)
The Bottom Line All five stocks are considered aggressive investments due to their stock price as well as their volatility. The good news is that all companies are expected to be profitable in the coming year, which lower some of the potential downside.
NEW YORK (AP) -- Stocks stabilized Thursday after two days of sharp declines brought on by Libya's deepening political crisis. The Dow Jones industrial average recouped much of its losses after oil prices eased in the afternoon, but still ended down for a third straight day.
Broader market indicators were mixed. The Standard & Poor's 500 index lost 1 point and the Nasdaq composite index rose 15.
Investors were relieved to see oil prices fall for the first time in nine days after the International Energy Agency said fighting between forces loyal to Moammar Gadhafi and anti-government protesters in Libya were not affecting oil inventories as much as analysts had feared.
Oil fell 82 cents to settle at $97.28 a barrel on the New York Mercantile Exchange, having traded as high as $103.41 earlier in the day. Oil has jumped 18 percent since Feb. 15 while anti-government protests swept through countries in North Africa and the Middle East. Regimes in two of Libya's neighbors, Tunisia and Egypt, have fallen in the past month.
Traders are worried that fighting could threaten Libya's oil production and spread to other countries in the region, such as Saudi Arabia, the world's second-largest producer. Higher oil prices can also slow the U.S. economy by increasing transportation costs.
Reports of ample oil inventories "calmed some of the short-term fears in the market," said Bruce McCain, chief investment strategist at Key Private Bank. "But the fact that there is very little real information coming out the country is worrying."
The Dow Jones industrial average fell 37.28 points, or 0.3 percent, to 12,068.50. It had been down as much as 122 earlier in the day. Over the previous two days the Dow lost 285 points, or 2.3 percent, the largest drop since August 12.
The Standard & Poor's 500 index fell 1.30, or 0.1 percent, to 1,306.10. The S&P was also down for a third straight day.
The Nasdaq composite bucked the trend. It rose 14.91 points, or 0.6 percent, to 2,737.90.
The mixed stock performance came after the Labor Department reported that fewer people applied for unemployment benefits last week, a sign that the job market is recovering. The four-week average for applications, a figure closely watched by financial analysts, fell to its lowest level in more than two and a half years.
The housing market, however, continued to lag. The Commerce Department said sales of new homes fell significantly in January.
Several companies rose after announcing better than expected earnings.
Priceline.com Inc. jumped 8.5 percent after the online travel service reported a 73 percent surge in fourth-quarter earnings and raised its income forecast for the current quarter. Target Corp. rose 3.5 percent after the retailer reported an 11 percent gain in profit. H&R Block Inc. rose 5 percent after the tax preparation company said it expected its earning to be close to a break-even point in its fiscal third quarter.
Bond prices rose, pushing their yields lower. The yield on the 10-year Treasury note fell to 3.46 percent from 3.49 percent late Wednesday.
Rising and falling shares were about even on the New York Stock Exchange. Consolidated volume came to 5.2 billion shares.
AP Business Writer Chris Kahn contributed to this story.
By Roger Choudhury and the Investment Underground editors 
