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Fallout from Saudi Arabia strikes is everywhere

Data: FactSet; Chart: Axios Visuals

The attack on a Saudi Arabian oil field Saturday is still reverberating through markets, and it could have long-term implications for much more than the price of crude.

What's happening: Just about every market was moved by the attack and fears or hopes of how it could reprice assets.

Details:

  • Oil prices saw the biggest move, with U.S. WTI crude futures rising by 15%, the largest uptick since 2008.
  • Stock prices fell, with the Dow, S&P and Nasdaq all ending the day lower. Airlines were hit hard as JetBlue and United Airlines both fell nearly 3% while American Airlines dropped 7.3%.
  • Energy stocks, on the other hand, had their best day of the year, with the S&P Oil & Gas Production ETF jumping almost 11%, and the S&P energy sector rising out of a bear market with its best session of 2019.
  • Yields on the benchmark 10-year Treasury note fell by the most in 3 weeks, as traders sought safe haven U.S. government debt. Gold prices also jumped 1%.
  • Saudi officials also said they may delay an IPO for state oil company Saudi Aramco as a result of the attacks.

Looking ahead: Gas prices could rise meaningfully if tensions persist in the Gulf between longtime rivals Saudi Arabia and Iran, which the White House blamed for the bombing.

  • Oil analyst Andy Lipow predicted on CNBC that U.S. gas prices will rise by 20 cents per gallon “over the next week to 10 days.” The average price of a regular gallon of unleaded has been around $2.56, according to AAA.
  • That could also lead to a material increase in inflation, which is already seeing a pickup thanks to the tariffs in the U.S.-China trade war and rising U.S. wages.
  • An inflation surprise could force the Fed to re-evaluate its easing path in the coming months, potentially exacerbating the damage from the trade war.

Yes, but: Oil prices are still a far cry from their levels even a year ago and are not even threatening $100 a barrel, where they held for much of 2011 to 2014.

  • "Higher prices will hurt consumer spending, but there will be some offset by an increase in energy-related investment. The good news is that the U.S. consumer is in good shape and can absorb higher gasoline prices in the near term," Ryan Sweet of Moody’s Analytics tells WSJ.

The big picture: Much of what happens next will depend on President Trump and his response to the attack. On Monday, he tweeted that the U.S. was "locked and loaded" and prepared for any conflict, but later asserted that he was "somebody that would like not to have war."