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Oil and gas surge as Strait of Hormuz fears lift energy and borrowing costs
Brent crude climbed back above $100 a barrel as the Strait of Hormuz effectively closed, while UK 10-year government bond yields reached their highest level since 2007 amid inflation concerns.
Oil prices surged to $105 a barrel as Middle East conflict fears intensified, raising concerns that higher energy costs could feed through to inflation, BBC Business reports.
With the US and Iran conflict in the Gulf escalating, the Strait of Hormuz is described as effectively closed, limiting oil and gas supply from the region reaching global markets. Brent crude returned above $100 a barrel on Wednesday and continued to rise, while US and UK long term borrowing costs jumped to their highest levels in decades.
Analysts warned markets face added pressure from the combined shock of energy prices and higher borrowing costs. Chris Beauchamp, chief market analyst at IG, said investors are increasingly focused on the crisis in oil markets and warned prolonged energy price spikes could weigh on the global economy.
The report also points to natural gas prices rising sharply, including in the UK where wholesale prices topped 200p a therm for the first time since the end of 2022. It notes European storage levels are below normal for the time of year and that Ofgem's price cap shields consumers only in the short term, with the cap set to increase by 3.6% at the start of October.
It added that the energy-led inflation risk lifted government bond yields worldwide, with UK 10-year yields at the highest since 2007 and longer-dated yields at levels not seen since 1998, implying higher borrowing costs.
Latest closeWTI crude $97.01 ▲4.3%|Brent $102.05 ▲4.2%|Nat gas $2.805 ▼3.8%