Brent crude oil surged to its highest level since May on Thursday due to escalated conflict in the Middle East, raising concerns about disruptions in global oil supply. Meanwhile, the U.S. stock market faced significant losses driven by sharp declines in the shares of influential companies like Alphabet and Tesla.
The S&P 500 dropped by 1.2%, signaling a potential back-to-back weekly loss, while the Dow Jones Industrial Average fell by one percent and the Nasdaq composite plummeted by 2.2%. The surge in oil prices, particularly Brent crude, which rose by seven percent to $100.69 per barrel, exerted pressure on stocks as businesses faced increased costs and diverted consumer spending toward higher fuel prices.
The spike in oil prices was triggered by attacks on two Saudi oil tankers in the Red Sea, posing a threat to crucial oil transportation routes from the Middle East. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, backed by Iran, in response to the attacks.
The rise in oil prices raised concerns about accelerating inflation, potentially prompting central banks to consider interest rate hikes, which could dampen economic growth and impact stock prices. Consequently, the yield on the 10-year treasury bond increased to 4.69%, influencing other financial markets such as mortgage rates.
As gasoline prices typically align with oil price movements, the average price of gas in Canada reached $1.802 per liter, slightly above the previous day’s average. Companies heavily reliant on fuel, like American Airlines and Southwest Airlines, experienced notable stock declines despite reporting stronger profits, reflecting worries about rising expenses.
Tesla faced a significant drop of 14.5% following lower-than-expected quarterly profits, contributing to the market downturn, while Alphabet’s stock fell by 7.1% despite surpassing profit and revenue expectations. Investors expressed concerns about Alphabet’s increased spending on artificial intelligence investments, raising uncertainties about the technology’s profitability.
Overseas, European markets experienced sharp declines in response to surging oil prices, with France’s CAC 40 index falling by 1.6%. However, earlier in the day, Asian markets, including South Korea’s Kospi, showed strength with a 4.4% jump. The fluctuations in oil prices and concerns about geopolitical tensions continued to influence global financial markets.