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The Dow Jones Industrial Average and S&P 500 Index retreated from Friday’s record highs as the energy sector was hammered after the price of crude oil tumbled to five-year lows. REUTERS/Eric Thayer

U.S. stocks dropped Monday, with the Dow Jones Industrial Average and Standard & Poor's 500 Index retreating from Friday’s record highs, as the energy sector was hammered as the price of crude oil tumbled to five-year lows. West Texas intermediate crude, the benchmark for U.S. oil prices, dropped 4.24 percent to $63.05 for January delivery on the New York Mercantile Exchange, falling to less than $63 a barrel earlier in the session for the first time since July 2009.

On the London ICE Futures Exchange, Brent crude, the global benchmark for oil prices, fell 4.16 percent to $66.20 a barrel. Monday’s plunge comes after Morgan Stanley slashed its forecast for Brent crude in 2015 to $70 from the firm's earlier outlook at $98. "Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley analyst Adam Longson said in the research note.

But in the short term, consumers are benefiting from the drop in oil prices as the average cost of gasoline in the U.S. has fallen to $2.65 per gallon, according to Gasbuddy.com. “For the U.S. alone, the decline in gasoline prices could amount to a boost of $100 billion a year in disposable income for consumers. Our forecasts for U.S. growth already factor some of this effect for Q4 '14 and Q1 '15. Notice, however, that these are level effects and are unlikely to maintain a sustained boost to consumption growth later in the year,” Citigroup analysts said in the firm’s Global Economic Outlook and Strategy research note.

The drop in oil prices hit the S&P 500’s energy sector, dropping 3.91 percent to $568.43. “Should oil prices fall significantly further, the negative effect on investment in shale gas and tight oil production would reinforce the reduction in consumption demand by the oil producers. Investment in oil- and gas-using industries could, however, be boosted,” Citigroup said.

The drop in oil prices in the last six months comes as oil giant ConocoPhillips announced plans to spend less in 2015 as the price of crude falls. ConocoPhillips revealed a 2015 capital budget of $13.5 billion Monday, a decrease of nearly 20 percent compared to 2014. The reduction in capital relative to 2014 primarily reflects lower spending on major projects and the delay of spending on North American unconventional resources. “We are setting our 2015 capital budget at a level that we believe is prudent given the current environment,” Ryan Lance, chairman and chief executive officer of ConocoPhillips said in a statement. “We have significant identified inventory in the unconventionals where we also retain a high degree of capital flexibility.”

The market’s decline Monday follows Friday's stronger-than-expected U.S. jobs data, which boosted the Dow Jones Industrial Average index to a record high that was within just 10 points of the psychologically important 18,000 milestone. Weaker-than-expected economic reports out of Japan and China painted a mixed picture of the global economy, weighing on investor sentiment early in the trading session.

Ahead on Tuesday’s economic calendar, the National Federation of Independent Business will release its monthly Small Business Optimism Index at 7:30 a.m. EST, an important economic indicator as small businesses are responsible for a majority of new job creation the direction of the health of small businesses can indicate changes in the stock market.

The blue chip Dow Jones Industrial Average dropped 106.31 points, or 0.59 percent, to finish at 17,852.48; the S&P 500 stock index, which tracks the share prices of the nation's 500 largest publicly traded companies, fell 15.06 points, or 0.73 percent, to end at 2,060.31. The Nasdaq Composite lost 40.06 points, or 0.84 percent, to finish at 4,740.69.