Stocks Wobble, Oil Prices Spike as Iran War Engulfs Energy Sites
Key Takeaways
- US stocks slipped Thursday amid continued worries the energy supply shock.
- European and Asian markets dropped on Thursday as fresh attacks on Middle Eastern energy infrastructure drove energy prices higher.
- Oil prices pulled back after an overnight spike.
US stocks edged lower Thursday, following global peers, as investors digested a series of fresh attacks on key Middle Eastern energy infrastructure. The Morningstar US Market Index fell 0.23%, the S&P 500 benchmark dipped 0.27%, and the more technology-heavy Nasdaq 100 fell 0.28%.
The attention in the markets continues to be on energy prices. Futures for European natural gas, a key source of energy on the continent, jumped 25% early Thursday to EUR 67—their highest level since the conflict began—before dipping to EUR 61. During US trading, oil prices retreated slightly, with West Texas Intermediate crude falling roughly 0.2% Thursday.
While the US market had a subdued response to the latest developments in the war, the moves were more significant for markets in countries that depend more on Middle East oil and gas.
The Morningstar Europe Index declined more than 2% on Thursday. With a cumulative decline of nearly 8% since the start of the conflict, the index is on track for its worst month since June 2022.
“As the conflict deepens, the market is rightly concerned. This mainly stems from the rise in the price of oil, which may hit fresh highs if the threats to oil facilities in the Middle East are carried out,” explains Morningstar chief European markets strategist Michael Field.
“We’re still sticking with our longer-term forecast of $65 a barrel, but in the short term, a lot can happen, and this is having knock-on effects,” Field says.
Qatar said on Thursday that Iran had inflicted “extensive further damage” on its Ras Laffan terminal, the world’s largest liquefied natural gas facility. A day earlier, Israel struck Iran’s South Pars gas field, the world’s largest. US President Donald Trump warned Wednesday that the US would “massively blow up the entirety of the South Pars gas field” if Iran continued targeting Qatar’s energy facilities.
“In contrast to previous Middle East conflicts, the US is not drawing broad support from other Western nations,” says Derren Nathan, head of equity research at Hargreaves Lansdown. “For now, the path back to the negotiating table looks far from clear, but as economic reality sets in, things could change. Any steps in this direction could provide welcome relief for stock markets.”
Central Banks Stand Pat
Global markets are also focused on a slew of key central bank decisions, amid fears that the war could spark a resurgence in inflation, triggering more hawkish monetary policy.
The US Federal Reserve held rates steady on Wednesday, as expected, and emphasized uncertainty in the economic outlook while signaling one likely rate cut this year. The Bank of Japan, the Swiss National Bank, Sweden’s Riksbank, the European Central Bank, and the Bank of England similarly maintained rates on Thursday.
