Saudi Aramco refinery attacked, energy stocks help the S&P 500 reverse its decline

Southern Finance, 21st Century Business Herald Reporter Wu Bin Reports

As the market generally expects the disruptions from the US-Iran conflict to be relatively limited, US stocks have rebounded in a V-shape.

On March 2 local time, US stocks opened lower, with the Dow Jones Industrial Average dropping nearly 600 points intraday. However, driven by strength in energy stocks and bottom-fishing funds, the indices then rebounded, with the Dow recovering most of its early losses, and the S&P 500 and Nasdaq closing higher.

Several factors fueled this rebound: significant gains in energy and defense stocks, including ExxonMobil and Chevron; US oil prices falling back from the day’s highs, easing concerns about the conflict impacting the US economy; and investors heavily buying leading tech stocks in a bull market, such as Nvidia and Microsoft, which are cash-rich and resilient to shocks.

Regarding the US stock rebound, Jeff Kilburg, CEO of KKM Financial, said that the futures market previously overreacted to the Iran conflict, creating buying opportunities as the S&P 500 approached its 2026 lows. He predicted on the evening of the 1st that the market would turn positive before the close on the 2nd: “Despite escalating geopolitical tensions, we are still in a bull market.”

Energy Stocks Strengthen to Help S&P 500 Stabilize

Rising oil prices boosted energy stocks, helping US stocks recover losses, offsetting declines in the consumer discretionary sector. Energy companies surged due to higher oil prices and improved profit expectations, with ExxonMobil up over 1%, Western Oil up 2.1%, and Chevron up 1.5%.

According to CCTV News, on the 2nd, there were reports that a refinery owned by Saudi Aramco was attacked by a drone. As a precaution, Saudi Aramco has shut down the refinery.

On March 2, as oil tankers carrying crude oil and fuel nearly stopped passing through the Strait of Hormuz, gasoline futures rose as much as 9%. Data from the American Automobile Association showed that on March 1, the average retail price of gasoline in the US rose to $3 per gallon, the highest in three months.

Citigroup’s US chief equity strategist Scott Crozat pointed out that over the past 40 years, from a market perspective, the duration of military conflicts and market expectations of their length are the most important factors. “The worry wall that US stocks need to climb over is getting higher and higher.”

He noted that the reaction of oil prices is obvious, but now it must be added to the growing list of concerns troubling US stocks: excessive capital expenditure in AI; rapid AI adoption potentially disrupting many business models and raising labor market concerns; signals of trouble in private credit and private equity markets, increasing anxiety.

Duration of Conflict Is Key

For US stocks, the length of the US-Iran conflict is a crucial factor affecting the market. If the situation stalls, the Strait of Hormuz remains closed, and oil prices surge, the risks to US stocks will significantly increase.

Morgan Stanley strategist Michael Wilson believes that past Middle East military conflicts did not cause long-term market declines. For this conflict to cause a major and sustained blow to US stocks, oil prices would likely need to jump above $100 per barrel.

In the short term, there is a risk of excessive optimism. Matt Maley, chief market strategist at Miller Tabak + Co., said that the flat closing of US stock indices indicates investors are underestimating the market risk of the Iran conflict, especially given recent adverse factors weighing on the stock market.

However, long-term historical experience shows that the impact of geopolitical conflicts is often limited. According to Morgan Stanley data, after “geopolitical risk events,” the S&P 500 has averaged gains of 2%, 6%, and 8% at 1 month, 6 months, and 12 months respectively.