UK petrol at £1.56 a litre, US gasoline passes $4 a gallon as crude rallies
Oil prices rose above $100 a barrel Thursday for the first time since May, the BBC reported, as escalating conflict in the Middle East stoked concerns about global energy supplies. Brent crude, the global benchmark, rose more than 6% on the day. The BBC reported the surge followed an attack by Houthi militia in Yemen on oil tankers in the Red Sea, threatening a key export route Saudi Arabia has used to bypass the Strait of Hormuz.
The rally has translated into higher costs at the pump. UK petrol prices have risen 5p a litre since the beginning of July, reaching nearly £1.56, the BBC reported citing new data released Thursday. Diesel averaged £1.72 a litre, according to the RAC. In the US, average gasoline prices surpassed $4 a gallon, up from $3.92 a month ago, according to AAA. The UK benchmark gas price has also risen steadily over the past month, trading at around 150 pence per therm, up from roughly 98 pence at the end of June.
The renewed price pressure threatens to complicate the inflation outlook in both countries. The annual inflation rate fell to 2.6% in the UK in the year to June, helped in part by slowing diesel and petrol prices, and to 3.5% in the US. The BBC reported that questions remain whether the slowdown will prove short-lived due to the renewed conflict. “More expensive fuel and energy can ripple through the wider economy, increasing costs for businesses and ultimately feeding through into the price of food and other goods,” Jonathan Raymond, an investment manager at Quilter Cheviot, told the BBC. “This creates another headache for central banks as they continue their battle against inflation.”
The Bank of England has held its benchmark interest rate at 3.75% for four consecutive meetings. Paul Dales, chief UK economist at Capital Economics, told the BBC he believed the Bank will “almost certainly” hold again next time, though analysts still expect rate cuts next year if energy price rises ease.
In the US, the Federal Reserve held rates between 3.5% and 3.75% at the first meeting of newly appointed Chair Kevin Warsh last month. Warsh told Congress last week that the central bank had “no tolerance to persistently elevated inflation” and that he was committed to “restoring price stability” in the wake of the Middle East conflict. President Donald Trump, who pushed Warsh’s predecessor Jerome Powell to cut rates, has made clear he expects Warsh to deliver reductions in borrowing costs for Americans, the BBC reported.
Oil prices had fallen back to levels last seen before the US and Israel began military action against Iran on 28 February, following a temporary ceasefire. However, the BBC reported that the ceasefire has failed. US Secretary of State Marco Rubio said this week that the people in charge in Iran were “not ready to make a deal,” casting doubt on the prospects for a diplomatic resolution to the conflict that has disrupted global energy markets for months.