Wall Street tumbled on Monday, with the FTSE 100 (^FTSE) and European stocks also heading lower, as chancellor Rachel Reeves held a virtual meeting on the oil crisis (BZ=F, CL=F) with G7 finance ministers.
As the war with Iran entered its 10th day, wiping out most of the gains recorded this year, the G7 meeting discussed a joint release of petroleum from reserves, co-ordinated by the International Energy Agency (IEA).
Roland Lescure, France’s finance minister, said that the G7 was “not there yet” on an agreement to release oil stockpiles, and has yet to reach a consensus on the issue, according to Bloomberg.
Meanwhile, Japanese finance minister Satsuki Katayama has told a briefing that the IEA called for a coordinated release of emergency oil reserves during the call.
It comes as oil is on track for its biggest daily jump since the COVID-19 pandemic, after at least five energy sites in and around Tehran were hit by strikes. Conflict in Iran has spurred crude-producing countries to cut output, which were already curbed by the virtual closure of the Strait of Hormuz shipping corridor.
Brent crude (BZ=F) jumped as much as 25% to hit almost $120 a barrel overnight, its highest in four years, before falling back to around $109. US West Texas Intermediate (WTI) crude saw similar movements and was trading at about $104 a barrel.
On Sunday, president Donald Trump posted on his Truth Social platform: “Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace. ONLY FOOLS WOULD THINK DIFFERENTLY!”
Ipek Ozkardeskaya, senior analyst at Swissquote, said: “The choice suggests that Iran will not back down to the US, and that means a potentially prolonged war in the Middle East – which is home to about 50% of global oil reserves and around 40% of the world’s natural gas reserves.”
“About 20% of the world’s oil and LNG flows through the Strait of Hormuz, which is presently closed, making it one of the most critical energy chokepoints in the global economy.”
“Oil prices will reach a peak at some point – maybe they already have, maybe there’s more to come – but they are likely to fluctuate at elevated levels for weeks, perhaps months.”
“Eventually – even if the war persists – energy prices will likely come down. But during this period, high energy prices will revive inflation globally and weigh notably on growth.”
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London’s benchmark index (^FTSE) was 1.1% lower in early afternoon trade, touching its lowest level since mid-January during the session.
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Germany’s DAX (^GDAXI) dipped 1.6% and the CAC (^FCHI) in Paris also headed 2% into the red.
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The pan-European STOXX 600 (^STOXX) was down 1.6%, hovering around its lowest since December.
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The Dow Jones Industrial Average (^DJI) fell 0.8% after futures plunged more than 1,000 points overnight. The S&P 500 (^GSPC) also dropped 0.8%, while the tech-heavy Nasdaq Composite (^IXIC) sank 0.7%. All three indexes had tanked more than 2% in early out-of-hours trading.
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The pound was 0.4% down against the US dollar (GBPUSD=X) at 1.3355.
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Key companies reporting this week: Oracle, TSMC, Nio, Persimmon and Legal & General.