Brent crude oil surged to its highest level since May on Thursday due to escalating conflicts in the Middle East, raising concerns about a potential disruption in global oil supply. Simultaneously, sharp declines in the stock prices of influential companies like Alphabet and Tesla led to the U.S. stock market experiencing its most significant loss in a month.
The S&P 500 declined by 1.2%, signaling a potential back-to-back weekly loss for the first time since March. The Dow Jones Industrial Average also decreased by one percent, while the Nasdaq composite saw a 2.2% drop. These declines were primarily attributed to the impact of rising oil prices, which increase operational costs for many businesses and redirect consumer spending toward fuel expenses.
The price of Brent crude oil, the global benchmark, surged by seven percent to reach $100.69 US per barrel, reaching its highest level since May. This spike was triggered by the recent attacks on two Saudi oil tankers in the Red Sea, disrupting a key route used by oil companies to transport crude from the Middle East to global markets, including the vital Strait of Hormuz.
Highlighting the economic significance of the affected sea route, U.S. President Donald Trump threatened severe military action against the Houthi rebels in Yemen, supported by Iran, if the attacks on ships continue. The spike in oil prices poses a threat to reignite inflation, potentially prompting central banks to raise interest rates, which could slow economic growth and impact stock and investment prices.
The increase in oil prices also led to a rise in the yield of the 10-year treasury bond to 4.69%, a notable uptick from pre-conflict levels. This uptrend has contributed to pushing long-term U.S. mortgage rates to their highest levels in nearly a year. Concurrently, gasoline prices tend to follow oil price movements, with the average gas price in Canada reaching $1.802 per litre, slightly higher than the previous day’s average.
On Wall Street, companies heavily reliant on fuel experienced significant losses due to concerns over increased expenses. American Airlines saw an 8.4% drop despite reporting stronger-than-expected profits for the quarter, attributed to elevated fuel prices. Southwest Airlines also decreased by 6.2% despite positive financial results. Tesla faced a 14.5% decline after reporting weaker profits than anticipated, impacting the broader market due to its substantial market value within the S&P 500.
Alphabet’s stock also fell by 7.1% despite exceeding profit and revenue expectations, with investors focusing on increased spending on artificial intelligence investments. The company raised its capital spending forecast for the year, reflecting a growing emphasis on AI technology. However, concerns persist regarding the return on investment in this area, contributing to market volatility within the AI sector and broader stock market fluctuations.
Overseas, European markets experienced sharp declines in response to the surge in oil prices, with France’s CAC 40 index falling by 1.6%. In contrast, Asian markets, including South Korea’s Kospi, initially showed strength earlier in the day, with a 4.4% increase.
The fluctuating oil prices and geopolitical tensions have heightened market volatility, impacting various sectors and global stock indexes.
