Oil Prices Jump, Stocks Fall On Middle East Tensions

A graphic showing the rising prices of crude oil.

Oil prices surged and major stock markets mostly retreated Thursday as investors reacted to fears of widening conflict in the Middle East.

Prices jumped after US President Joe Biden said he was “discussing” possible Israeli strikes on Iranian oil sites in retaliation for Tehran’s missile barrage on Israel.

Brent, the international benchmark, surged more than five percent to $77.62 a barrel, with US contract West Texas Intermediate rising similarly.

Major US stock indices spent most of the day in the red, with the S&P 500 ending down 0.2 percent.

London, Paris and Frankfurt all closed in the red.

A strike by US dockworkers and speculation about the US Federal Reserve’s next interest rate moves also had an influence on investors, with a key employment report coming Friday.

The dollar gained, helped by its haven status, with the British pound sinking more than one percent against the greenback as Bank of England chief Andrew Bailey hinted at faster cuts to UK borrowing costs.

In Asia, Tokyo closed two percent higher as the yen eased, providing oxygen to the country’s exporters.

Hong Kong fell for the first time in more than a week, after a blistering surge fueled by China’s bold steps to stimulate its weak economy.

Iran’s missile attack on Israel this week has raised fears that Israel’s conflict with Tehran-backed groups in Gaza and Lebanon may grow into a wider regional war.

“Markets are in a state of suspense, bracing for Israel’s anticipated retaliation against Iran — a move that could catapult oil prices skyward,” said independent markets analyst Stephen Innes.

Iran, which backs Lebanese militant group Hezbollah, said it would step up its response if Israel counterattacked.

More than 1,000 people have so far been killed in the Israeli bombardment of Lebanon, which has included strikes on Beirut.

Israel’s military said Thursday it had hit Hezbollah’s intelligence headquarters in the Lebanese capital, as troops battled militants near the border and warplanes dropped bombs around the country.

Analysts, however, said oil price gains could be limited as US stockpiles rose more than expected last week while Libya’s eastern administration announced Thursday it had ended a month-long production and export blockade.

The Saudi-led OPEC+ oil cartel is due to raise production from December, further easing concerns about supply.

Investors will turn their attention to key US non-farm payroll jobs report on Friday, which could provide clues about the Fed’s plans for interest rates after last month’s first cut in four years.

Data on Wednesday showed a surprise uptick in US private sector hiring in September.

“Friday’s official payroll report will be critical, especially as markets weigh geopolitical risks against the domestic economy’s performance,” said Fawad Razaqzada, market analyst at City Index and Forex.com.