Oil prices have surged and government borrowing costs have risen as supply concerns grow amid escalating fighting in the Middle East and a hurricane impacting oil producers in the Gulf of Mexico.
The price of Brent crude oil increased by about 5% on Thursday to 105 dollars per barrel.
Market impact and gilt yields
The commodity price has been hovering above 100 dollars a barrel in recent weeks as worries grow about reports of fresh attacks targeting ships in the Middle East.
The sentiment spread across the financial markets on Thursday with the yield on UK government borrowing bonds, also known as gilts, rising to multi-decade highs.
The 10-year gilt rose to highs of about 5.53% during the day – the highest level since 2007.
Shipping attacks and supply disruption
The UK Maritime Trade Operations, which tracks shipping, said it received a report about a tanker being struck by projectiles in Qatar on Wednesday evening.
It has also reported a series of strikes on vessels within the Strait of Hormuz over the past week.
The strait carried about a fifth of the world’s oil and gas supplies prior to the conflict which has caused significant disruption to shipping and pushed up global prices.
Hurricane impact and market outlook
Meanwhile, supply concerns were heightened by disruption to oil production in the Gulf of Mexico caused by the approaching Tropical Storm Isaias, with reports that Shell and Chevron had halted offshore operations.
Dan Coatsworth, head of markets at AJ Bell, said: “Concerns around potential damage from Tropical Storm Isaias has led Shell and Chevron to curtail offshore operations in the Gulf, adding to supply concerns that were already front of mind thanks to ongoing Middle East conflict.
“The higher the oil price goes, the more volatility to expect on financial markets.
“Bond investors have made it clear they are concerned by the prospect of rising inflation feeding into higher interest rates and potentially economic setbacks.”
