Oil Crosses $100 as Energy Price Risks Return

Brent crude oil settled at $100.69 a barrel on Thursday, closing above $100 for the first time since May after attacks on two Saudi oil tankers in the Red Sea and continued disruption to shipping through the Strait of Hormuz raised concerns about global oil supplies.

The Red Sea and the Strait of Hormuz are two of the world's most important oil transit routes. If disruption continues, shipments can take longer, transport and insurance costs can rise, helping to keep global oil prices elevated.

UK motorists are already seeing fuel prices increase, and sustained oil prices above $100 a barrel could put further upward pressure on petrol and diesel costs. Higher oil prices can also increase transport and business costs, which may eventually feed through into the prices consumers pay for a wide range of goods and services.

The development is particularly significant after UK inflation fell from 2.8% to 2.6% in June, helped partly by lower motor fuel prices. If oil prices remain elevated, some of that progress could be reversed, increasing the risk that inflation rises again later this year.

Higher inflation could also leave the Bank of England with less scope to reduce interest rates if rising energy costs feed through into broader price pressures. That could keep mortgage, loan and other borrowing costs higher for longer, although much will depend on how long oil prices remain elevated.

A brief spike above $100 may have only a limited effect. The bigger risk for UK households is if oil prices stay high for an extended period, increasing costs across transport, businesses and the wider economy.