Brent crude oil surged to its highest level since May on Thursday due to escalating conflicts in the Middle East, posing a potential threat to the global oil supply. Concurrently, the U.S. stock market experienced significant declines as two influential companies, Alphabet and Tesla, posted sharp losses.
The S&P 500 dropped 1.2%, signaling its first consecutive weekly decline since March. The Dow Jones Industrial Average fell by one percent, while the Nasdaq composite plummeted by 2.2%.
Rising oil prices exerted pressure on stocks as businesses faced increased costs, diverting consumer spending towards elevated fuel prices. The price of a barrel of Brent crude oil, the global benchmark, surged seven percent to settle at $100.69 US, reaching its highest level since May. This spike 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 markets.
Highlighting the economic significance of the sea passage, U.S. President Donald Trump issued warnings of “major military punishment” against Houthi rebels in Yemen, supported by Iran, if they continue attacking ships.
The recent surge in oil prices poses a risk of reigniting inflation, prompting potential interest rate hikes by central banks, which could potentially slow down economies and impact stock and investment prices.
The 10-year treasury bond yield rose to 4.69%, up from 4.67% the previous day and significantly higher than the 3.97% level before the conflict with Iran. This increase has contributed to a rise in long-term U.S. mortgage rates, reaching their highest levels in nearly a year.
As oil prices climbed, gasoline prices followed suit, with the average price per liter in Canada at $1.802. This increase in fuel costs led to significant losses for companies heavily reliant on fuel, such as American Airlines and Southwest Airlines, despite reporting stronger profits than expected.
Tesla and Alphabet also witnessed substantial declines in their stocks, with Tesla dropping 14.5% following lower-than-expected profits, while Alphabet’s stock fell by 7.1% despite surpassing profit and revenue estimates. Investors expressed concerns over Alphabet’s increased spending on artificial intelligence investments and its impact on productivity and profitability.
In response to the oil price surge, European markets experienced sharp declines, with France’s CAC 40 falling by 1.6%. Conversely, Asian markets, including South Korea’s Kospi, showed strength earlier in the day.
The ongoing fluctuations in the stock market, driven by geopolitical tensions and economic uncertainties, have led to volatility across various industries, including the AI sector, impacting investor sentiment and market dynamics.
