The price of oil climbed to new multi-year highs on Monday morning, as global inflationary pressures continued to build. It came as the pound also rose to a two-week high.
Brent crude (BZ=F) jumped as much as 1.7% to $83.78 (£61.40) per barrel, its highest level since October 2018, amid restrained supplies from major producers and the ongoing energy crisis.
US crude also hit a new seven-year high, at $80.70 per barrel for the first time since 2014.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: “The barrel of US crude is now trading above the $80 level and, given the global energy crunch and a cautious OPEC [Organization of the Petroleum Exporting Countries], there is little that could halt the positive trend, other than worsening growth expectations.
Oil prices slumped at the start of the pandemic, and in April last year fell below zero for the first time in history as lockdown wiped out demand while producers continued to pump crude from their wells.
However, demand has been rising in recent months as economies around the world have started to reopen.
Global oil supplies took a hit from hurricanes Ida and Nicholas passing through the Gulf of Mexico and damaging US oil infrastructure.
A dramatic surge in natural gas prices has also made oil a relatively cheaper alternative for power generation, which in turn has increased demand.
Read more: Shell warns of hit from rocketing gas prices
The world's biggest independent oil trader, the Vitol Group, said it expects global demand for crude to increase by 500,000 barrels per day this winter, and investment bank Goldman Sachs (GS) said Brent could rise to $90 per barrel by the end of the year.
Last week, the OPEC and its allies, OPEC+, decided to maintain a steady and gradual increase in production. The group will release its monthly oil report later this week
Traders are mulling whether the Bank of England (BoE) will be prompted to raise interest rates due to inflationary pressures.
Over the weekend, Michael Saunders, an external member of the bank's monetary policy committee, said he expects the cost of borrowing to go up “significantly earlier” than currently forecast.
Watch: Will interest rates stay low forever?
“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” Saunders said in an interview with the Telegraph.
“But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”
However, he did not signal that a hike in November is on the cards.
A spike in interest rates, which would be the first rate rise since 2018, would increase bills for millions of UK households, but would help steady inflation.
UK inflation hit 3.2% in August while the BoE has projected that it would exceed 4% by year-end before falling only slowly afterwards.
Watch: What is inflation and why is it important?