Brent crude oil prices surpassed $100 per barrel on Thursday for the first time since May, driven by heightened conflict in the Middle East that threatens global crude supply. The surge in oil prices contributed to a significant drop in the U.S. stock market, with the S&P 500 experiencing its largest single-day loss in a month.
The international benchmark for oil, Brent crude, jumped 7% to settle at $100.69 per barrel, reaching an intraday high of $102. This increase is linked to attacks on two Saudi oil tankers in the Red Sea, which could disrupt crucial shipping routes for crude oil, in addition to the Strait of Hormuz.
President Donald Trump responded to the escalating tensions by threatening "major military punishment" against Houthi rebels in Yemen, who are reportedly backed by Iran, if attacks on shipping continue. The recent oil price spike comes after a period of decline, with Brent crude falling below $72 per barrel just weeks ago, amid hopes that a resolution to the conflict in the Middle East would reopen key shipping lanes.
Economists warn that the rising oil prices are likely to exacerbate inflation, which had recently begun to slow. This could pressure the Federal Reserve and other central banks to increase interest rates, potentially slowing economic growth and impacting investment markets. Traders are now pricing in a 36% probability of the Fed raising interest rates at its upcoming meeting, a significant increase from the 12% probability seen a week prior.
The jump in oil prices has also led to a rise in the yield of the 10-year Treasury, impacting long-term U.S. mortgage rates, which have reached their highest levels in nearly a year. Gasoline prices have followed oil prices upward, with the national average for a gallon of regular now at $4.09, up from $3.93 a month ago.
On Wall Street, the rising costs associated with fuel impacted several companies. American Airlines and Southwest Airlines saw significant stock declines, even as both reported better-than-expected profits, due to concerns about higher fuel expenses and the company's ability to raise airfares. Tesla's stock plummeted 14.5% after the electric vehicle company reported a weaker-than-expected profit for its latest quarter. Alphabet, the parent company of Google, also experienced a notable drop of 7.1%, despite reporting stronger profit and revenue. Investors appeared concerned about the company's increased spending on artificial intelligence investments, raising its forecast for capital expenditures.
The broader stock market reflected these concerns, with the S&P 500 falling 1.2%, the Dow Jones Industrial Average dropping 1%, and the Nasdaq composite declining 2.2%. European stock markets also experienced sharp losses, while Asian markets showed mixed performance earlier in the day.