Brent crude oil prices surged to their highest level since May as escalating conflicts in the Middle East raised concerns about disruptions in global oil supply. Simultaneously, sharp declines in the stocks of influential companies like Alphabet and Tesla dragged down the U.S. stock market, marking its worst performance in a month.
The S&P 500 dropped by 1.2%, signaling a potential back-to-back weekly loss for the first time since March. The Dow Jones Industrial Average decreased by one percent, while the Nasdaq composite plummeted by 2.2%.
Rising oil prices exerted pressure on stocks as businesses faced increased costs and consumers redirected spending towards higher fuel prices. The price of Brent crude oil, the global benchmark, spiked by seven percent to settle at $100.69 US per barrel, reaching its highest level since May. This surge was triggered by recent attacks on two Saudi oil tankers in the Red Sea, threatening vital transportation routes for oil companies.
U.S. President Donald Trump issued warnings of “major military punishment” against Houthi rebels in Yemen, backed by Iran, if attacks on ships persist. The potential impact on oil prices has reignited concerns about inflation, which could prompt central banks to consider interest rate hikes, potentially slowing down economies and affecting stock prices.
The yield of the 10-year treasury bond rose to 4.69%, up from 4.67% the previous day and significantly higher than the pre-conflict level of 3.97%. This increase has already led to a rise in long-term U.S. mortgage rates.
In Canada, gasoline prices have also started to climb in response to the oil price surge, with the average cost per liter reaching $1.802, slightly above the previous day’s average.
On Wall Street, companies heavily reliant on fuel expenses experienced significant losses. American Airlines saw an 8.4% decline despite reporting stronger-than-expected profits, while Southwest Airlines dropped by 6.2% despite positive quarterly results. Tesla’s stock plummeted by 14.5% following lower-than-expected profits, while Alphabet’s shares fell by 7.1%, despite beating profit and revenue expectations.
Investors are closely monitoring Alphabet’s increased spending on artificial intelligence (AI) investments, with concerns about the potential returns on such investments. This uncertainty has contributed to recent volatility in the AI industry and broader stock market fluctuations.
Stock markets in Europe experienced sharp declines due to the surge in oil prices, with France’s CAC 40 index falling by 1.6%. Conversely, earlier in the day, Asian markets, particularly South Korea’s Kospi, showed strong gains.
The global economic landscape remains uncertain as geopolitical tensions and rising oil prices continue to impact financial markets.