The price of Brent crude oil soared to a 32-month high yesterday on the back of continuing unrest in the Middle East and Africa.
Brent crude for May delivery rose $2.36 to $121.06 a barrel, the highest since August 2008. US crude rose to $108.74, its highest level since September 2008, the month that Lehman Brothers collapsed at the height of the economic crisis.
Madhur Jha, a global economist for HSBC, said: “Substantial cost increases, driven by dramatically higher commodity prices, are both threatening the economic recovery in the developed world and contributing to heightened political instability in parts of the emerging world.
“The rise in commodity prices has been truly remarkable, not least because many commentators — including ourselves — felt that the bigger risk to the global economy in recent years was deflation, not inflation. But perhaps the most surprising feature of the rise in commodity prices has been its timing. Never before have we seen such large increases in the cost of raw materials so soon after the end of a deep and protracted recession in the Western world.”
Further rises in oil prices could begin to negate some of the benefits of the Chancellor’s decision in the Budget last month to abolish the fuel duty escalator and cut fuel duty by 1p a litre.
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A Treasury official said: “By cutting duty and deferring the planned rise, a litre of fuel is 6p cheaper today than it would have been if we had not taken action. There is no doubt that this is welcome relief for families and businesses across the country.”
Separately, Valiant Petroleum raised its production forecast for this year and said that Britain’s newly imposed North Sea tax regime would not have an immediate impact on its cashflow. Shares in the explorer closed up 12½p, or nearly 2.5 per cent, at 522½p.