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 the global oil supply chain. Concurrently, major U.S. companies, Alphabet and Tesla, experienced significant declines, leading to the worst performance of the U.S. stock market in a month.
The S&P 500 dropped 1.2 percent and is heading towards its first consecutive weekly decline since March. The Dow Jones Industrial Average fell by one percent, while the Nasdaq composite tumbled 2.2 percent.
Rising oil prices exerted pressure on stocks as businesses faced increased costs and redirected consumer spending towards higher fuel prices. The price of a barrel of Brent crude oil, the global benchmark, surged by seven percent to settle at $100.69 US, reaching $102, the highest level since May for the most actively traded Brent contract.
The spike in oil prices was triggered by recent attacks on two Saudi oil tankers in the Red Sea, threatening a vital route for oil transportation from the Middle East to global markets. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, who are supported by Iran, if further attacks occur.
The surge in oil prices poses a risk of reigniting inflation, potentially prompting central banks to raise interest rates, which could slow down economies and impact stock and investment prices. Consequently, the yield of the 10-year treasury bond rose to 4.69 percent.
As oil prices climbed, gasoline prices also increased, with the average price of a liter of gas in Canada reaching $1.802. This uptick in fuel costs led to sharp declines in stocks of companies with substantial fuel expenses.
During the latest quarter, American Airlines and Southwest Airlines reported improved profits despite higher fuel prices but witnessed stock declines. Tesla shares plummeted by 14.5 percent following weaker-than-expected quarterly earnings, while Alphabet’s stock fell by 7.1 percent despite surpassing profit and revenue estimates.
Investors expressed concerns about Alphabet’s increased spending on artificial intelligence initiatives, leading to uncertainties about future returns on these investments. These apprehensions have contributed to market volatility, particularly in the AI sector.
International stock markets saw significant losses, particularly in Europe, driven by the surge in oil prices. Meanwhile, Asian markets, including South Korea’s Kospi, demonstrated strength earlier in the day.
Overall, the combination of geopolitical tensions in the Middle East and corporate performance fluctuations has led to a turbulent market environment with implications for various sectors globally.