Brent oil surged to its highest level since May on Thursday due to escalated conflicts in the Middle East, posing a threat to global crude supply. Simultaneously, the U.S. stock market faced significant losses driven by declines in tech giants Alphabet and Tesla.
The S&P 500 experienced a 1.2% drop, marking its first consecutive weekly decline since March. Similarly, 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 face increased costs, redirecting consumer spending towards higher fuel prices. The price of a barrel of Brent crude oil, a key global benchmark, surged by seven percent to reach $100.69 US.
The spike in oil prices was triggered by recent attacks on two Saudi oil tankers in the Red Sea, threatening a crucial route for oil transportation from the Middle East. President Donald Trump issued warnings of “major military punishment” against Houthi rebels in Yemen, backed by Iran, if such attacks persist.
The surge in oil prices has the potential to reignite inflation, prompting central banks to consider interest rate hikes that could dampen economic growth and impact stock and investment prices. Consequently, the yield on the 10-year treasury bond rose to 4.69%, a notable increase from pre-conflict levels.
Gasoline prices typically follow oil price movements, with the average gas price in Canada standing at $1.802 per liter, slightly higher than the previous day.
On Wall Street, companies with substantial fuel expenses experienced significant declines. Despite reporting better-than-expected profits, airlines like American and Southwest faced notable stock drops due to concerns over rising costs.
Tesla’s stock plummeted by 14.5% following weaker quarterly earnings than anticipated, significantly impacting the S&P 500 due to its substantial market value. Similarly, Alphabet witnessed a 7.1% decline despite exceeding profit and revenue expectations.
Investors expressed concerns over Alphabet’s increased spending on artificial intelligence, leading to uncertainties about the returns on these investments in terms of productivity and profitability, reflecting broader unease within the AI industry.
Global stock markets reacted negatively to the surge in oil prices, with European indexes, particularly France’s CAC 40, experiencing significant losses. Conversely, Asian markets, including South Korea’s Kospi, showed strength earlier in the day.
The latest developments underscore the potential economic repercussions of heightened geopolitical tensions and oil price volatility.
