Oil Prices Weigh on Stocks

Updated from 4:14 p.m. EDT

Stocks closed lower for a second session Monday as oil prices surged 3%, leaving traders on edge ahead of the upcoming Federal Reserve policymaking meeting.

The Dow Jones Industrial Average lost 20.97 points, or 0.19%, to 11,219.38, and the S&P 500 fell 3.59 points, or 0.28%, at 1275.77. The Nasdaq Composite declined by 12.55 points, or 0.6%, to 2072.50. The 10-year Treasury was down 6/32 in price to yield 4.92%, while the dollar rose against the euro and fell against the yen.

Pressuring the indices was the advance in crude. The price of a barrel of oil jumped after BPBP said it was stopping production at Prudhoe Bay in Alaska to repair a leak in a pipeline. The shutdown removes up to 400,000 barrels a day from the world's supply. In Nymex floor trading, September crude gained $2.22 to close at $76.98 a barrel, having briefly topped its all-time closing high of $77.03 intraday.

Shares of BP were lower by $2.09, or 2.9%, to $70.45. SunocoSUN jumped 4.9%, and Marathon OilMRO gained 1.8%. Dow component Exxon MobilXOM rose to near record highs, ending the session up 0.8% to $69.23.

By sector, the Amex Oil Index tacked on 0.7%, and the Philadelphia Oil Service Sector Index was higher by 0.6%. Both the Amex Airline Index and the Dow Jones Transportation Average dropped 1.4%.

"The equity markets are following the oil story," said Paul Nolte, director of investments with Hinsdale Associates. "The tone was set from that, but also no one wants to get a position in front of the Fed meeting tomorrow. The part no one has a clue on is exactly what will be in the statement. We need to see if the risk to the economy isn't outweighed by inflation."

The upswing in energy took some of the focus off of Tuesday's Fed meeting. On Friday, the July employment report suggested the central bank might be inclined to leave rates unchanged at 5.25% this week. The Fed has hiked rates at 17 straight meetings going back to June 2004, lifting the fed funds target rate by 425 basis points from 1%. Following the report, the futures market was pricing in 18% odds of a rate increase.

Volume was light ahead of the Fed's announcement Tuesday. About 1.35 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 5-to-3 margin. On the Nasdaq 1.46 billion shares traded, and losers outpaced winners more than 2 to 1.

To view Gregg Greenberg's video take on today's market, click here.