Oil prices have climbed above $108 a barrel after a series of drone attacks forced Saudi Arabia to close its east-west crude pipeline.
Brent crude, the international benchmark for oil prices, surged to more than $108.5 a barrel on Monday – a 3.7% increase on the day.
The spike came after Yemen’s Iran-aligned Houthi forces launched several attacks against Saudi Arabia and captured the strategic island of Perim in the Bab al-Mandab strait on Sunday, expanding their control of the waterway.
The rise was also fuelled by the Gulf states postponing a meeting with Tehran to discuss creating a temporary shipping lane through the strait of Hormuz, a vital channel through which a fifth of the world’s oil and gas supply normally passes.
Traders in the kingdom have warned it will run out of oil stocks for export if it does not reopen the east-west pipeline within days.
Gas prices also climbed higher on Monday, with the UK benchmark rising by 5% to 208.73p a therm – its highest level since December 2022.
Growing investor fears over rising energy prices stoking higher inflation worldwide reignited heavy selling pressure on bond markets on Monday, pushing up government borrowing costs on both sides of the Atlantic.
The yield – in effect the interest rate – on 10-year US government debt has risen by almost a percentage point from 4% to almost 5% in the past year amid mounting investor concern. Borrowing costs rose across Europe on Monday, including a rise in 30-year UK government yields to the highest level since March 1998.
The moves come as traders await decisions on interest rates from the US Federal Reserve on Wednesday and the Bank of England on Thursday after the European Central Bank raised borrowing costs last week.
With investors anticipating an increase from the Fed and a hold decision from Threadneedle Street amid mounting inflationary pressures, analysts said global bond markets could face another week of renewed volatility.
Daniela Hathorn, a senior market analyst at Capital.com, said: “Markets are starting the week on a defensive footing, with the combination of another escalation in the Middle East and increasingly hawkish central-bank expectations weighing on risk appetite.”
With wholesale energy prices on the rise, the cost of petrol and diesel hit new Iran war highs on Monday, according to the RAC, with the average cost of petrol climbing to 169.68p and diesel hitting 191.68p.
The US-Israeli war with Iran has disrupted oil and gas supply across the Middle East this year, sending the oil price soaring from its prewar level of about $72 a barrel to peak at $126 in April.
Brent crude later fell back over the summer amid hopes of a lasting ceasefire, before starting climb again after the memorandum of understanding between the US and Iran fell apart.
After a recent stepping up of hostilities the benchmark again rose above the $100 a barrel threshold last week for the first time since July.
Chris Beauchamp, of the broker IG, said that a “move back to the spring highs” looked increasingly likely. “Oil markets are being subjected to their worst fears all at once – attacks on energy infrastructure, the closure of Hormuz and a breakdown in attempts to restart negotiations,” he said.
“The risk of further disruption is also spreading beyond the Gulf, with the threat of renewed Houthi attacks on shipping adding another layer of uncertainty around key energy and trade routes.
“The major surprise is how calm markets remain in the face of all this, but if prices breach the March highs, things could get ugly very quickly.”
Oil output from Saudi Arabia had been under pressure before the attacks on its major pipeline. Riyadh told the Opec oil cartel recently that its crude production in August was at its lowest level since 1990, according to Bloomberg.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: theguardian.com
