Oil retreats below US$100 per barrel, giving boost to interest-rate sensitive stocks including real estate
Oil prices fell more than one per cent on Tuesday, with Brent crude dropping below the psychological US$100 per barrel mark as Gulf exports inch back towards pre-war levels. The decline gave a boost to interest-rate sensitive stocks including real estate, according to AJ Bell's head of markets Dan C
Stock markets firmed on Tuesday (Oct 6) as oil prices retreated on easing supply worries, helping to temper concerns about rising government borrowing costs. On Wall Street, the technology-focused Nasdaq index advanced 0.8 per cent, coming off a record high set on Monday driven by AI enthusiasm. That boosted European stock markets after gains across most Asian equity markets.
Oil prices were down more than one per cent as Gulf exports inch back towards pre-war levels, with the international benchmark Brent North Sea crude falling below the psychological level of US$100 a barrel. Oil's decline "gave a boost to interest-rate sensitive stocks including real estate and consumer cyclicals," said Dan Coatsworth, head of markets at AJ Bell.
Arne Lohmann Rasmussen, a commodities analyst with Global Risk Management, noted that "Gulf exports excluding Iran averaged 19.2 mb/d in September, equivalent to 81 per cent of pre-war levels" even though Iran is still curtailing tanker traffic through the Strait of Hormuz. But he added that "crude exports were back to 91 per cent of pre-war levels, while refined product exports were only around 60 per cent" — a supply cut that has sent fuel costs soaring. In the UK, the average diesel price at the pump struck a record high last week, according to official data.
There remains plenty of uncertainty among traders over the Middle East crisis, which is putting pressure on central banks to raise interest rates to combat energy-fuelled inflation. That has pushed government bond yields up to levels not seen in decades, heightening worries about ballooning debt.
Analysts say the race to build out AI data centres, servers and chips has compounded that problem, with tech titans no longer able to rely on their vast piles of cash. Borrowing by firms including Google, Amazon and Microsoft hit around US$500 billion in the nine months since January, and Goldman Sachs expects a further ramp-up in 2027, to US$1.2 trillion. "This is not something that we've seen before," said Chris Della Fave, senior vice president at the fundraising advisory firm Post Oak Group, who estimates that AI accounts for 25 per cent of all corporate bond issuance — up from four per cent two years ago.
David Morrison, senior market analyst at Trade Nation, pointed to the fact that only the technology and energy sectors are trading higher than their 50-day moving average. "Clearly, this is not indicative of a healthy bull market and there is a very real danger that a crack in the AI story could see stocks across the tech sector hit an air pocket which affects everything," he said. Noting the upward push in equities, Morrison said "there was a solid start to the new week yesterday as all the major US stock indices ended the session with gains," even though elevated bond yields "remain a concern."
