Rise in cost of crude after US attack on Iranian general could affect petrol price

This article is more than 8 months old

This article is more than 8 months old

Oil prices climbed above $70 a barrel for the first time in four months on Monday amid fears that the US airstrike that killed Iran’s top military commander may trigger a retaliation and disrupt global energy supplies.

The Brent crude price hit $70.73 (£53.74), its highest level since Houthi rebels launched a drone attack on a major Saudi oil facility in September, with European stock markets also posting losses, including a decline of 0.6% on the FTSE 100 in London. The S&P 500 and Dow Jones in New York were

slightly up at closing.

About a fifth of the global oil supply flows through the Strait of Hormuz, a narrow shipping route between Oman and Iran. It was targeted last year by Iran, which seized two oil tankers in the strait.

A prolonged oil price surge could raise the risk of a global economic recession and would add about 2p a litre to the price of petrol at the pumps.

Oil hits $70 and stocks slide as US-Iran tensions rise – business live Read more

However, market analysts at Goldman Sachs and UBS have cast doubt on whether oil prices will continue to rally beyond $70 a barrel because of strong production from outside the Middle East. Brent crude slipped back below $69 in later afternoon trading on Monday after touching its four-month high.

UBS expects the global oil market to be oversupplied this year because of rising production from the US and Norway, which would keep prices from staying above $70.

Paul Donovan, the chief economist at UBS Global Wealth Management, said the global market’s focus on the oil price after the attack is “a rather 1970s reaction” that is “perhaps not appropriate for 2020”.

The oil price spike to more than $70 a barrel after the Saudi oil refinery attack proved short-lived, with the price retreating to less than $65 within days.

“More serious economic damage may come if there is cyber-retaliation – which seems suited to this situation – or from general uncertainty,” Donovan said.

The geopolitical jitters have triggered a surge in the market price for gold, which asset managers typically consider a safe haven in times of turmoil.

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The market price for gold rose to a near seven-year high of $1,575 an ounce on Monday and analysts expect the price could climb higher if the US dollar weakens relative to other currencies.

A spokesman for the RAC said a prolonged oil price rally would add at least 2p a litre to the price of petrol, weeks after the first rise in six months in December.

The average price of a litre of petrol rose by almost 0.25p in December to 126.1p, according to the RAC. Motorists are paying more for the fuel because of a combination of rising oil market prices and the cost of meeting EU rules to include more biofuels in petrol and diesel.