Stocks Steady as Crude Oil Jumps, Ships Are Hit in Strait of Hormuz

Key Takeaways

• Oil prices ticked higher as investors weighed the release of emergency IEA energy reserves and news of attacks on cargo ships near Iran.
• US stocks opened flat despite continued declines in Europe.
• US government bond yields ticked higher.

US stocks were flat on Wednesday and oil prices rebounded as investors digested signs of further energy supply disruption due to the Iran war, despite the release of emergency oil reserves.

The US Market Index was little changed as the S&P 500 inched up 0.1% and the Nasdaq added 0.3%. Consumer price inflation increased 2.4% on a year-over-year basis in February, in line with expectations. Oracle shares, meanwhile, jumped 9% after the software vendor’s earnings and revenue for the fiscal third quarter exceeded analyst forecasts.

Oil prices rose again on Wednesday, undoing some of Tuesday’s cool-down, even as the International Energy Agency launched an historic release of emergency oil reserves to help shore up global energy markets. However, experts are sceptical such a move would be a game-changer.

“If you actually look at what’s being proposed ... that is minuscule in terms of what we’re actually losing from the Middle East,” Christopher Haines, head of oil at Energy Aspects, says.

The release of 400 million barrels of oil — which accounts for around one-third of the agency’s total emergency reserves — pales in comparison to the 7 million barrels per day of crude typically released by the region, according to Haines.

Brent crude and WTI crude were both up around 4% to USD 91 and USD 87, respectively, following the announcement.

Oil trading had turned volatile in the prior session, with Brent briefly dipping below USD 80 after US Energy Secretary Chris Wright wrongly claimed on social media that the US Navy had escorted a tanker through the Strait of Hormuz. He later deleted the post.

The Morningstar Europe Index was down 1.3% in dollar terms during the European afternoon, after Asian stocks in the Morningstar Asia Index closed 0.8% higher.

Meanwhile, the US military said overnight that “multiple” Iranian vessels, including 16 minelayers, had been struck near the Strait of Hormuz amid reports that Tehran had begun laying explosives in the critical energy gateway.

Government bonds also came under pressure Wednesday as investors again weighed the impact of a sustained higher oil price on inflation.

“The key point is that even if equities appear relatively stable day to day, markets remain sensitive to geopolitical headlines and energy prices, which could still influence inflation and central-bank policy expectations,” Saxo Bank writes.

The US 10-year Treasury yield was 0.02 percentage points higher at 4.16%. Yields on the UK’s 10-year gilt benchmark rose 0.09 percentage points to 4.64% and those for Germany’s 10-year bunds rose 0.03 percentage points to 2.89%.

The Strait of Hormuz is a critical chokepoint not only for energy flows but wider supply chains, including those of critical minerals and fertilizers used in food production. As such, continued disruption remains a key concern for investors as they weigh wider repercussions for the global economy.

“You have to get flows restarted through there, because this is such a critical point of the global economy,” Haines said. “If we see a few more weeks of this … we’re going to see secondary and tertiary impacts.”