Brent crude oil prices surged to their highest level since May due to escalating conflicts in the Middle East that posed a threat to global crude oil supply. Concurrently, Alphabet and Tesla, two major companies on Wall Street, experienced significant declines, leading to the U.S. stock market’s worst performance in a month.
The S&P 500 dropped by 1.2%, heading towards its first consecutive weekly decline since March. The Dow Jones Industrial Average decreased by 1%, while the Nasdaq composite plunged by 2.2%.
Rising oil prices exerted pressure on stocks as they increase operational costs for many businesses, diverting consumer spending towards higher fuel prices. The price of a barrel of Brent crude, the global benchmark, surged by seven percent to $100.69 US, reaching its highest level since May.
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 to global consumers. U.S. President Donald Trump warned of “major military punishment” against the Houthi rebels in Yemen, backed by Iran, if the attacks continue.
The surge in oil prices has the potential to reignite inflation, prompting central banks to consider raising interest rates, which could slow economic growth and impact stock and investment prices. The 10-year treasury bond yield rose to 4.69%, a notable increase from before the conflict with Iran began.
As oil prices climb, gasoline prices also tend to rise. The average price of gas in Canada stood at $1.802 per liter, slightly higher than the previous day’s average.
On Wall Street, companies with significant fuel expenses experienced sharp declines. American Airlines saw an 8.4% drop despite reporting better-than-expected profits, while Southwest Airlines fell by 6.2% despite positive financial results for the quarter.
Tesla’s stock plummeted by 14.5% following lower-than-expected quarterly earnings, impacting the S&P 500 due to its substantial market value. Alphabet’s stock also declined by 7.1% despite exceeding profit and revenue expectations, as investors focused on the company’s increased spending on artificial intelligence investments.
Concerns over the profitability of AI investments have unsettled the industry, leading to market volatility. Stock markets in Europe experienced significant losses as oil prices surged, with France’s CAC 40 index dropping by 1.6%.
Earlier in the day, Asian markets, particularly South Korea’s Kospi, showed strength with a 4.4% increase.
Overall, the global financial markets faced challenges from escalating conflicts in the Middle East, impacting oil prices, stock performances, and investor sentiment.