Geopolitical tensions stemming from new attacks on Saudi oil tankers and threats of a "major military punishment" against Houthi rebels by former President Trump have caused oil prices to surge. Brent crude, the international benchmark, jumped 7% to settle at $100.69 per barrel, even briefly touching $102. This marks the highest price for Brent crude since May and raises concerns about disruptions to oil flow through the Strait of Hormuz and the broader Middle East.
The surge in oil prices has negatively impacted stock markets, with the S&P 500 falling 1.2%, the Dow Jones Industrial Average dropping 1%, and the Nasdaq Composite sinking 2%. This puts the S&P 500 on track for its first back-to-back weekly loss since March. Tech giants Alphabet and Tesla were particularly hard hit after disappointing earnings reports, with Alphabet down 6.9% and Tesla plummeting 14.5% due to concerns over their massive capital spending drives. Analysts noted that investors were spooked by Alphabet switching to negative cash flow, a departure from the expected cash generation of major tech firms.
The prospect of higher oil prices is exacerbating inflation worries, which in turn increases the likelihood of the Federal Reserve and other central banks raising interest rates. Such rate hikes could slow economies and depress asset prices. Bond yields also rose in response to these concerns. While Asian markets saw some uplift from regional tech firms, European markets finished lower, and the dollar firmed against other currencies as buyers needed more dollars to purchase crude oil.
