Europe close: Shares drop as Mideast tensions and oil prices spike
Stocks finished moderately lower at the start of the week as investors tried to assess the scope for further mischief in the Middle East following drone or cruise missile attacks at the weekend that more than halved oil output from Saudi Arabia, one of the world's largest producers.
Investors were also waiting on an update on the extent of the damage to the Saudi installations, amid concerns that a spike in crude prices could take its toll on an already vulnerable global economy and of more widespread conflict in the Middle East.
"The attack was as severe as it was unexpected but that's not the worst thing about it," said Oanda senior market analyst Craig Erlam.
"Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge."
By the end of trading, the benchmark Stoxx 600 index was down 0.58% at 389.53, Germany's Dax was 0.71% lower at 12,380.31 and Franc's CAC 40 was off 0.94% at 5,602.23.
In parallel, front month Brent crude oil futures were climbing 13.01% to $69.23 a barrel on the ICE, having surged by nearly 20% at the start of trading.
And the Stoxx 600's gauge of Oil&Gas shares was jumping by 2.78% to 320.13, with a rival sector sub-index for Travel&Leisure down by 0.59%.
Earlier, two sources briefed on the company's operations told Reuters that resumption of full normal output might take "months" with one of them adding that "it's still bad".
And according to some analysts, like Jefferies's Jason Gammel, reports that it was drones which had been used by Houthi rebels "seems a bit far fetched given the distance from Yemen to the Eastern Province of Saudi Arabia and the extent of the damage."
The attacks took out roughly 5.7m barrels a day of Saudi Arabia's production approximately 9.81m b/d or almost 6% of global supplies.
"The risk of escalation is clear – we note Iran has seized a UAE-flagged vessel this morning. Meanwhile there is of course a heightened risk of splintering within the OPEC alliance and its friends, mainly Russia," chipped in Markets.com's chief market analyst, Neil Wilson.
Market participants were also digesting some disappointing data out of China, which showed that industrial production fell to a 17-year low in August, while retail sales and fixed asset investment also weakened.
Pantheon Macroeconomics said: "Overall, these three reports will be a blow to the authorities. Admittedly the data are volatile, but officials are clinging on to the notion that previous stimulus efforts will feed through. That’s fair enough, but these figures raise the case for doing more in the meantime."