Brent crude oil surged to its highest level since May on Thursday due to escalating conflicts in the Middle East, raising concerns about disruptions in global oil supply. Meanwhile, the U.S. stock market experienced substantial losses driven by sharp declines in the shares of tech giants 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 1%, while the Nasdaq composite tumbled by 2.2%.
Rising oil prices exerted pressure on stocks as they increase operational costs for businesses and redirect consumer spending towards higher fuel prices. The price of a barrel of Brent crude oil, the international benchmark, surged by seven percent to reach $100.69 US.
This spike was triggered by the recent attacks on two Saudi oil tankers in the Red Sea, posing a threat to crucial oil transportation routes from the Middle East to global markets, including the Strait of Hormuz.
The significance of these sea routes was underscored by U.S. President Donald Trump’s warning of “major military punishment” against Houthi rebels in Yemen, who are supported by Iran, if the attacks persist.
Just a few weeks ago, Brent crude prices had fallen below $72 amid hopes for a resolution in the U.S. and Israel conflict with Iran, aiming to reopen the Strait of Hormuz fully.
The surge in oil prices raises concerns about reigniting inflation, potentially prompting central banks to raise interest rates, which could slow economic growth and impact stock and investment prices.
The yield on the 10-year treasury bond rose to 4.69%, a notable increase from 4.67% the previous day and 3.97% before the conflict with Iran. This rise has contributed to pushing long-term U.S. mortgage rates to their highest levels in almost a year.
With gasoline prices often mirroring oil price movements, the average Canadian gas price stood at $1.802 per liter, up by 1.9 cents from the previous day’s average.
On Wall Street, companies heavily reliant on fuel saw significant stock declines. American Airlines dropped by 8.4% despite reporting better-than-expected profits for the quarter, driven by increased airfares to offset rising fuel costs.
Southwest Airlines also saw a 6.2% decline, although it exceeded profit and revenue expectations for the quarter. Tesla faced a 14.5% drop following weaker-than-expected quarterly profits, impacting the broader market due to its substantial market value.
Alphabet’s stock fell by 7.1% despite surpassing profit and revenue estimates, as investors focused on the company’s increased spending on artificial intelligence initiatives. The uncertainty surrounding the returns on these investments has led to market volatility in the AI sector recently.
Overseas, European markets experienced significant declines due to the spike in oil prices. France’s CAC 40 index fell by 1.6%, reflecting broader market sentiment. Conversely, Asian markets, such as South Korea’s Kospi, witnessed earlier strength with a 4.4% surge.
The market upheaval reflects the intertwined impacts of geopolitical tensions, oil price fluctuations, and corporate performance on global financial markets.