Oil prices surged on Thursday as escalating conflict in the Middle East threatened to disrupt the global supply of crude. This surge brings renewed pressure to Wall Street, particularly impacting major stocks such as Alphabet and Tesla.
The S&P 500 saw a decline of 0.8%, poised for its first consecutive weekly loss since March. The Dow Jones Industrial Average fell by 363 points, a 0.7% drop, while the Nasdaq composite decreased by 1.6%. The rise in oil prices is causing economic strain, increasing operational costs for businesses and redirecting consumer spending towards higher fuel costs.
The price for Brent crude oil, the global benchmark, jumped 6.1% to reach $99.78 a barrel. Earlier in the day, it briefly exceeded $100, marking its highest price in two months after attacks on two Saudi oil tankers in the Red Sea. These attacks pose risks to one of the vital routes used by oil companies to transport crude from the Middle East, alongside the Strait of Hormuz. In response, U.S. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, backed by Iran, should these attacks continue.
Recent weeks saw Brent’s price dip below $72, amid optimism for the reopening of the Strait of Hormuz for oil tankers. However, this optimism has been overshadowed by the current rise in oil prices, potentially accelerating inflation. This scenario could prompt the Federal Reserve and other central banks to hike interest rates, thereby slowing economic growth and affecting stock and investment prices.
The yield on the 10-year Treasury increased to 4.70% from Wednesday’s 4.67%, a significant rise from 3.97% before the Iran war, impacting long-term U.S. mortgage rates to their peak in nearly a year.
Stocks of companies with high fuel expenses suffered losses due to concerns about mounting costs. American Airlines dropped 9.1% despite reporting a larger-than-expected spring profit. The company raised airfares to counteract increased fuel costs. Southwest Airlines also retreated 4.2%, even though it had reported better-than-anticipated profit and revenue for the latest quarter.
A prominent factor affecting the stock market was Tesla’s 9.8% drop. Elon Musk’s electric-vehicle firm reported lower-than-expected profits for the latest quarter. Although Tesla’s size in the S&P 500 by market value grants it significant influence, Alphabet—a major tech company—also saw a 5.7% fall, even though it outperformed analysts’ profit and revenue predictions.
Investors are showing concern over Alphabet’s announcement of increased spending on artificial intelligence. CEO Sundar Pichai noted that AI demand accelerated cloud revenue growth to 82% last quarter. Despite this, investors remain skeptical about the financial returns of Alphabet’s substantial AI investments.
European stock markets reacted sharply to rising oil prices, with France’s CAC 40 falling 1.7%. In contrast, Asian markets displayed strength earlier, as evidenced by South Korea’s Kospi gaining 4.4%.
This report included contributions from AP Business Writers Matt Ott and Elaine Kurtenbach.