Falling consumer confidence levels and a 280-point sell-off by the Dow industrials swept across the energy sector lower Tuesday, raising new doubts about fuel demand in an economy beset by tighter credit and heightened volatility in its financial markets.
The Conference Board reported its index tracking U.S. consumers' confidence in August fell to a one-year low. It was also the steepest one-month drop in the index seen since Hurricane Katrina dealt a crippling blow to the Gulf Coast in 2005.
Weaker consumer confidence is seen by industry economists as translating into slower demand for petroleum products, both in manufacturing and transportation. Retreating oil and gas prices also undermined support for energy stocks. October crude futures slipped 19 cents to $71.74 a barrel on a raft of refining problems that cut into the facilities' demand for crude oil. See Futures Movers.
The rash of negative news sent the Amex Oil Index (XOI: 1,305.19, -37.71, -2.8%) steadily lower through the session, leaving it with a 2.8% loss at 1,305 points.
U.S.-traded shares of France's Total SA (TOT: 71.17, -2.72, -3.7%) led percentage decliners, down 3.7% to $71.17. Dow Jones reported the company was in the process of restarting a production unit at its Port Arthur, Texas, petrochemicals plant following a power outage late Monday.
Exxon Mobil Corp. (XOM:83.00, -2.12, -2.5%) , the only oil company in the Dow Jones Industrials (.DJI:13,041.85, -280.28, -2.1%) , shed 2.5% to end at $83 a share. Chevron, reportedly restarting the fire-damaged gasoline unit at its giant Pascagoula, Miss., refinery, fell 3.1% to $84.30. ConocoPhillips (COP:78.81, -2.17, -2.7%) retreated 2.7% to $78.81. 
The Amex Natural Gas Index (XNG:464.55, -11.57, -2.4%) fell 2.4% to 464.6 points, getting no lift from a 4.7% rebound in natural-gas futures.
The Amex Natural Gas Index (XNG:464.55, -11.57, -2.4%) fell 2.4% to 464.6 points, getting no lift from a 4.7% rebound in natural-gas futures. The Philadelphia Oil Service Index ($OSX:259.46, -5.46, -2.1%) lost 2% to 259.5 points, led by a 3% drop in shares of Weatherford International Inc. (WFT:54.34, -1.74, -3.1%) to $54.34.
Despite oil drilling and service stocks falling off their mid-July highs, Lehman Brothers said it remains upbeat on the group, taking note of one of the longest and strongest upcycles ever seen.
"A systematic underinvestment in the energy business over the last 25 years has created a backdrop for an expansion in exploration and production spending that we expect to continue to benefit the oil and service drilling companies at least well into the next decade," Lehman energy analyst James Crandell said in a research note.
Major investment themes, he said, will revolve around those companies best able to participate in the Eastern Hemisphere, deepwater and subsea production, new drilling rig construction, and the further expansion of natural-gas industry infrastructure globally.
Among Lehman's top picks in the oil-service group, the broker named Weatherford, National Oilwell Varco Inc. (NOV:117.58, -2.51, -2.1%) and Schlumberger Ltd. (SLB:91.31, -1.83, -2.0%) . As for its favorite U.S. drillers, Diamond Offshore Drilling Inc. (DO:98.59, -1.62, -1.6%) and Noble Corp. (NE:98.33, -1.58, -1.6%) got Lehman's nod. Overseas, Lehman recommended shares of Petrofac and Subsea 7 .
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