U.S. stocks fell and haven assets like gold and the Japanese yen gained after a weekend attack on Saudi Arabian oil facilities sent crude prices surging. The Dow Jones Industrial Average shed 86 points or 0.3%. The S&P 500 lost 0.4% and the Nasdaq Composite shed 0.6%. Ten of the 11 sectors in the S&P 500 fell except for energy shares, which climbed 2.3%. Brent crude, the global oil benchmark, rose 10% to $66.37 a barrel. It had earlier jumped as much as 19.5% to $71.95 a barrel but retraced some of those gains after initial concerns over how badly oil output would be affected ebbed on Saudi vows to restart production. U.S. oil futures rose 9.7% to $60.15 a barrel.
The rise came after attacks on Saudi oil production facilities Saturday, which knocked out 5.7 million barrels of daily production. The kingdom is racing to restore roughly one-third of the disrupted production by day’s end Monday. On Sunday, President Trump said he authorized the release of oil, if needed, from the Strategic Petroleum Reserve to help offset cost increases. The U.S. holds about 600 million barrels of emergency crude products, said Oswald Clint, a senior analyst for Sanford C. Bernstein & Co. U.S. energy companies saw benefits from the supply disruption, with Devon Energy up 8.5%, Marathon Oil rising 10% and Hess up 5.9%.
Gold added 0.7% and the Japanese yen rose 0.2% against the U.S. dollar. The currencies of oil-producing countries strengthened against the U.S. dollar, with the Russian ruble up 0.6%, the Norwegian krone up 0.2% and the Canadian dollar up 0.2%. Energy-importer Turkey saw the lira fall 0.5% against the U.S. dollar. The initial spike in oil prices came amid the uncertainty of how severely Saudi facilities had been hit. A strike to the oil field would be the shock scenario, impeding production significantly, while damage to the processing plant would be easier offset, said Norbert Rucker, head of commodities research at Swiss bank Julius Baer.
“The market reaction right now really points to a benign scenario,” he said. Kerry Craig, a global market strategist at J.P. Morgan Asset Management, said oil producers could dip into stockpiles, which would help stabilize prices. “The bigger issue is what premium markets will build in to reflect the risk of further attacks,” he said. The Federal Reserve is scheduled to meet this week and markets are pricing in another interest-rate cut of a quarter-point.“Central banks are likely to look through the inflationary impacts of higher oil prices but the added geopolitical risk to an already fragile backdrop will not go without notice,” Mr. Craig said.
Higher oil prices could push up inflation and prompt the Fed to think twice before cutting rates again, said Weiqi Zhu, a fund manager at Gao Zheng Asset Management in Hong Kong. However, he said Mr. Trump’s oil-release authorization helped calm markets in the short term. A sustained increase in fuel prices could be the latest threat to a world economy that is already under pressure from the U.S.-China trade dispute. It could weigh on consumer spending as higher energy prices can raise gas and heating bills, cutting into available incomes. Hao Zhou, a foreign-exchange and emerging markets analyst at Commerzbank in Singapore, said growing optimism over the U.S.-China trade dispute helped offset the effect of oil market disruption.
“In general, the trade talk hope has helped the markets,” he said. “It’s very difficult to project the impact of oil and any short-term supply shock.” The attack also spiked investor concerns that Saudi Arabia could be an easy target for future attacks, said Ole Hansen, head of the commodity strategy at Saxo Bank. “There’s probably going to be some security provider who is going to get some decent contracts,” he said. The yield on the 10-year U.S. Treasury note fell to 1.864%, down from 1.901% Friday. Last week, it rose the most since June 2013. Bond yields and prices move in opposite directions. Elsewhere, the Stoxx Europe 600 fell 0.4%. In Hong Kong, the Hang Seng Index fell 1.1% after another weekend of violent protests. South Korea’s Kospi rose 0.6% and the Shanghai Composite was flat. The Japanese stock market was closed for a holiday.
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