Brent crude oil surged to its highest level since May on Thursday due to escalated conflicts in the Middle East, posing a threat to global crude oil supply. Meanwhile, U.S. stock markets experienced significant declines, influenced by sharp decreases in the shares of Alphabet and Tesla.
The S&P 500 dropped by 1.2%, potentially marking its first consecutive weekly loss since March. The Dow Jones Industrial Average fell by one percent, while the Nasdaq composite saw a 2.2% decline.
Rising oil prices added pressure on stocks as they increase operational costs for many businesses, leading to a diversion of consumer spending towards higher fuel prices. The price of a barrel of Brent crude oil, the global benchmark, soared by seven percent to settle at $100.69 USD.
The spike in oil prices was triggered by attacks on two Saudi oil tankers in the Red Sea, threatening a crucial route for oil transportation from the Middle East to global consumers, including the Strait of Hormuz.
President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, supported by Iran, if they continue targeting ships, highlighting the economic significance of sea routes.
The surge in oil prices poses a risk of reigniting inflation, potentially prompting central banks to hike interest rates, which could slow down economies and impact stock and investment prices.
The yield on the 10-year treasury bond rose to 4.69% from 4.67% late Wednesday and 3.97% before the conflict with Iran began. This increase has contributed to pushing long-term U.S. mortgage rates to their highest levels in nearly a year.
With gasoline prices typically following oil price movements, the average price of gas in Canada reached $1.802 per liter, slightly above the previous day’s average.
On Wall Street, companies heavily reliant on fuel experienced substantial losses due to concerns over increased expenses. Despite reporting higher profits for the quarter, American Airlines shares plummeted by 8.4%, while Southwest Airlines saw a 6.2% decline.
Tesla, a major player in the S&P 500, witnessed a 14.5% drop following weaker-than-expected quarterly earnings results. Alphabet’s stock also fell by 7.1% despite exceeding profit and revenue expectations, as investors focused on the company’s increased investment in artificial intelligence.
Global stock markets reacted to the surge in oil prices, with European indexes experiencing notable declines, while Asian markets showed earlier strength, with South Korea’s Kospi surging by 4.4%. The ongoing uncertainty surrounding AI investments has contributed to market volatility in recent weeks.
