Growing Concerns about Oil Market
Oil prices have soared as markets are nervous about the conflict that is raging in the Middle East. Paul Gooden of NinetyOne asset management, the head of natural resource, has warned that tensions in the Middle East could cause oil prices to rise to $150 a barrel. This level may make consumers reduce their consumption. He thinks that these prices will likely be temporary and that a solution to the problem is inevitable.
The price of gas has reached a new high
Gas prices in the UK for delivery a month ahead soared by nearly 25%, to 171p/therm. They then fell to around 149p. Gas prices in the UK have almost doubled since the start of the conflict, but they are still below their peak price per therm from 2022, when the Russia-Ukraine Crisis was at 640p.
Global Stock Market Impact
The Dow Jones Industrial Average and S&P 500 both opened Monday’s trading lower by approximately 1.4%. The European indexes, such as Germany’s Dax and France’s Cac40 (down 1,8%), also declined. London’s FTSE 100 fell to its lowest point in nearly two months. However, energy giants BP & Shell rose thanks to higher oil prices.
Asian markets also experienced sharp declines. Japan’s Nikkei fell by 5.2% while South Korea’s Kospi declined 6%.
The Cost of Borrowing is Rising
Investors expect a slower rate cut, which will increase borrowing costs for the UK government. The markets had expected a reduction in rates this year. However, the recent oil price spike has increased the likelihood of an increase by 2026. The UK interest rate is currently 3.75%. The yields on two-year government bonds rose from 3.87% to 4.09%, while the yields of 10-year benchmark bonds climbed from 4.3% to 4.73%.
Expert Insights
Adnan Mazarei, from the Peterson Institute for International Economics, said that the increase in oil prices is expected due to the halted production of Gulf countries as well as the possibility of a long-term conflict. He noted that people are now realizing the situation won’t be resolved quickly.
