U.S. stocks tumbled and oil prices surged after attacks on Saudi Arabian oil facilities over the weekend led to massive supply disruptions out of one of the world’s largest production centers. The Dow was on track to break an eight-session winning streak.
Futures for Brent crude (BZ=F) – which serves as the international benchmark for oil prices – surged the most on record during intraday trading Monday, after the attacks took a hit to half of the kingdom’s oil output. Brent crude prices jumped by about $12 just after trading opened Monday, representing a nearly 20% price spike, before paring gains by the end of regular trading.
Here were the main moves in the market by the closing bell on the New York Stock Exchange:
However, Trump administration officials have since pinned the strikes on Iran, which sponsors the Houthi rebels. Secretary of State Mike Pompeo said in a Twitter post that “Iran has now launched an unprecedented attack on the world’s energy supply,” and that “There is no evidence the attacks came from Yemen.” Iran has denied it was responsible for the raids.
Trump followed up with a Twitter post on Sunday saying, “There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!”
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S. (REUTERS/Brendan McDermid)
Haven assets rallied Monday as investors weighed the prospects of a wider conflict, with the U.S. having already blamed Iran as the culprit behind a series of attacks on oil tankers in the Strait of Hormuz – a major oil transportation hub – earlier this year. Gold, the Japanese yen and Swiss franc each rallied.
The 10-year Treasury yield, which often moves in the same direction as crude oil prices, instead fell on Monday as investors poured into less risky government debt. Bond prices move inversely to yields.
Transportation, airline and cruise operating companies’ stocks fell amid the rise in oil prices. Carnival Cruise Lines’s (CCL) stock fell 3.3%. Shares American Airlines (AAL) fell 7.3%, while shares of JetBlue (JBLU) and United Airlines (UAL) were off more than 2%.
According to a report from the Wall Street Journal Monday, the disruption has also led Saudi Arabian officials to mull a delay to Saudi Aramco’s initial public offering. The state-backed energy company had been scheduled to publicly list as soon as this year, in what was anticipated to be the largest IPO on record, with an expected IPO raise of around $100 billion.
The Saudi oil disruption has also thrust focus to the energy sector, which has been both a laggard to the S&P 500 this year and a sector carrying relatively little weight in the index overall. The energy sectors has risen 5.6% this year through Friday’s close, versus a gain of nearly 20% for the S&P 500.
“As unexpected as the weekends events were, to us it is more of a wake-up call about the Energy sector than a sign that macro investment narratives are about to change dramatically,” Nicholas Colas and Jessica Rabe, DataTrek co-founders, wrote in a report Monday.
“It’s not the best-structured industry around and its growth prospects may be poor, but the world still uses 100 million barrels of oil a day,” they added. “And when a few million of those barrels go offline, even temporarily, it’s hard not to notice.”
Shares of U.S. energy companies including Devon Energy (DVN), Marathon Oil (MRO), Hess Corp. (HES) and Diamondback Energy (FANG) rose amid the Saudi supply disruption. Goldman Sachs strategists led by Brian Singer in a note Sunday generated a list of companies the firm has rated as Buy and considers to be “exposed to oil price upside” in the wake of the Saudi attack, including ConocoPhillips (COP), Murphy Oil Corp. (MUR), Pioneer Natural Resources Company (PXD) and Kosmos Energy Ltd. (KOS).
In a similar vein, other analysts said the attacks should invoke a reassessment of the price of oil on the whole. Prices for the commodity had been mostly capped this year due to concerns of a supply glut.
“No matter whether it takes Saudi Arabia 5 days or longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure – that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil, which Citi reckons should have been a good $10 a barrel higher than it has been for months,” Citi analyst Ed Morse wrote in a note Sunday.
The weekend’s oil shock also comes at a precarious time for global growth, with troubling signs of a slowdown abounding in some of the world’s largest economies. This was particularly the case for China, with disappointing new data released for both its key manufacturing sector and for the consumer on Monday. Saudi Arabia is the largest individual supplier for China’s crude imports.
Official data from the China on Monday showed the country’s key industrial sector generated the weakest output since 2002, with value-added industrial output rising just 4.4% in August from a year earlier, versus a rise of 5.2% expected. China’s retail sales data also missed expectations, rising just 7.5% in August, versus consensus expectations for an increase of 7.9%.
