Oil prices hit $100 per barrel for the first time since July on Wednesday morning as new strikes in the Middle East sparked fresh concerns for global oil supplies.
Brent crude – the international benchmark for oil prices – jumped more than two per cent, hitting $100 per barrel after making consistent gains from the start of the week.
The latest jump will put fresh pressure on the Bank of England to hike interest rates, analysts have warned.
“$100 is a psychological level that matters for markets,” said Kathleen Brooks, research director at XTB. “If the oil price rises above this level it will give many central banks no choice but to hike rates, it will increase costs for businesses and consumers and ultimately could weigh on economic growth.”
Speaking to MPs on Tuesday, Bank of England governor Andrew Bailey warned that energy prices could rise even higher next year if the war in Iran continues.
Bailey said that inflation risks were “to the upside,” warning that energy prices “could be higher still” due to continued fighting in the Middle East.
“The conflict is still going on and it is also causing a high level of energy prices and quite a bit of volatility in energy prices,” Bailey said, adding that turbulence was “feeding through into financial markets”.
The FTSE 100 fell on Wednesday morning, as boosts for oil majors BP and Shell failed to outweigh the wider gloom clouding the index.
Richard Hunter, head of markets at Interactive Investor, said: “The lack of enthusiasm was felt within a broad markdown, with the oil majors being among the few to offer any resistance, alongside Computacenter which gained again after pleasing interim results yesterday which led to a broker upgrade.
“The rising oil price and air traffic control problems which have affected British Airways left parent International Consolidated Airlines under pressure, while Burberry slumped after a broker downgrade.