Global Oil Markets React to Middle East Tensions and AI-Driven Market Volatility

Global Markets Tumble Amid Iran Conflict and OPEC Split

New York, April 28 (Reuters) - Oil prices surged on Tuesday as investors assessed the stalemate in the Iran conflict and news that the United Arab Emirates (UAE) was cutting ties with the Organization of the Petroleum Exporting Countries (OPEC). The move, which dealt a significant blow to the oil-exporting group and its de facto leader, Saudi Arabia, weighed on equity markets, with concerns over the AI boom's momentum also contributing to the decline.

The U.S. bond market also suffered, with yields rising on concern over the impact of high energy prices on inflation. The 2-year Treasury note yield rose 3.1 basis points to 3.836%, while the 10-year note yield increased 1 basis point to 4.346%. The 30-year bond yield dipped 0.6 basis point to 4.9358%.

The tech-heavy Nasdaq Composite underperformed other U.S. indexes, as investors questioned whether the artificial intelligence boom could continue to deliver meaningful returns. The Dow Jones Industrial Average fell 31.64 points, or 0.06%, to 49,136.15, while the S&P 500 fell 35.13 points, or 0.49%, to 7,138.78. The Nasdaq Composite fell 223.30 points, or 0.90%, to 24,663.80.

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Oil prices briefly pared gains on the news of the UAE's departure from OPEC, but Brent crude rose to $111.13 per barrel, up 2.68% on the day, while U.S. crude rose 3.68% to $99.92 a barrel. The UAE's decision to quit OPEC is seen as a significant blow to the oil-exporting group, which has struggled to maintain unity in the face of the Middle East conflict.

Higher oil prices have continued to lift inflation expectations, with the dollar index rising 0.19% against a basket of currencies. The British pound fell 0.1% against the dollar, while the euro was little changed. The dollar has been a safe-haven asset during the Iran conflict, but has given up a large part of its March gains in recent weeks.

The Bank of Japan (BOJ) left short-term rates unchanged at 0.75%, in the first of several central bank meetings this week. The yen briefly strengthened on the view that a rate hike was now in play, but was last 0.12% lower at 159.6 per dollar. A breach beyond the 160-per-dollar threshold would put markets on alert that Tokyo might step in to support its currency.

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The U.S. Federal Reserve, the Bank of England, and the European Central Bank are due to announce decisions later this week, with market attention focused on comments from policymakers on pricing pressure.