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Brent oil shot to its highest price since May on Thursday as increased fighting in the Middle East threatened to slow the global flow of crude.
At the same time, sharp drops for two of Wall Street’s most influential companies, Alphabet and Tesla, yanked the U.S. stock market to its worst loss in a month.
The S&P 500 fell 1.2 per cent and is on track for its first back-to-back weekly loss since March. The Dow Jones Industrial Average dropped one per cent, and the Nasdaq composite sank 2.2 per cent lower.
Stocks sank under the pressure of rising oil prices, which raise costs for many businesses and divert their customers’ dollars away to pay higher prices for fuel. The price for a barrel of Brent crude oil, the international standard, jumped seven per cent to settle at $100.69 US.
It earlier touched $102, the highest price since May for the most actively traded Brent contract in the market. The cause: attacks on two Saudi oil tankers in the Red Sea. That threatens another avenue that oil companies use to transport their crude from the Middle East to customers worldwide, along with the Strait of Hormuz.
Underscoring the importance of the sea route for the economy, U.S. President Donald Trump threatened “major military punishment” against the Houthi rebels in Yemen, who are backed by Iran, if they keep attacking ships.
It was just a few weeks ago that the price for a barrel of Brent had dropped below $72, roughly back to where it was before the U.S. and Israel attacked Iran, on hopes that the wind-down in the war would fully reopen the Strait of Hormuz.
The jumps in oil prices are threatening to reaccelerate inflation. That in turn could push central banks to raise interest rates, which would slow economies and undercut prices for stocks and other investments.
Higher oil prices pushed the yield of the 10-year treasury bond up to 4.69 per cent from 4.67 per cent late Wednesday and from just 3.97 per cent before the war with Iran began. That’s a significant increase, and it’s already helped bring long-term U.S. mortgage rates to their highest levels in nearly a year.
Gasoline prices tend to rise with oil prices, and the average price for a litre of gas across Canada was $1.802, according to GasBuddy.com — 1.9 cents above yesterday’s average.
On Wall Street, stocks of companies with big fuel bills fell to sharp losses on worries about higher expenses.
American Airlines fell 8.4 per cent even though it reported a much bigger profit for the spring than analysts expected, something that usually sends a stock’s price higher. It raised airfares, which helped it offset its higher fuel prices during the latest quarter.
WATCH | Houthis strike 2 Saudi tankers:
Global shipping fears widen as Iran-backed Houthis claim strikes on 2 Saudi oil tankers
Yemen’s Iran-backed Houthis have claimed strikes on two Saudi-flagged oil tankers in the Red Sea, threatening another vital waterway and potentially leading to broader economic disruption.
Southwest Airlines lost 6.2 per cent, even though it also reported better profit and revenue for the latest quarter than analysts expected.
One of the heaviest weights on the U.S. stock market was Tesla, which sank 14.5 per cent after Elon Musk’s electric-vehicle company reported a weaker profit for the latest quarter than analysts expected. Because it’s one of the largest stocks in the S&P 500 by market value, its stock has more influence on the index than nearly every other.
Alphabet’s stock fell 7.1 per cent even though the parent company of Google delivered stronger profit and revenue than analysts expected.
Investors seemed to be focusing instead on how much more Alphabet said it’s set to spend on artificial-intelligence investments. Alphabet raised its forecast for capital spending over the full year after its investments last quarter doubled to nearly $45 billion US from a year earlier.
CEO Sundar Pichai said AI demand helped its cloud revenue growth accelerate to 82 per cent last quarter, but investors are still uneasy about whether all the billions of dollars Alphabet is pouring into the technology will pay off in terms of productivity and profits.
Such worries have been shaking the AI industry broadly in recent weeks, leading to big swings for the overall stock market.
In stock markets abroad, indexes fell sharply in Europe as oil prices jumped. France’s CAC 40 fell 1.6 per cent for one of the larger losses.
Indexes earlier in the day were stronger in Asia, where South Korea’s Kospi jumped 4.4 per cent.