Oil prices surged to record highs yesterday, sending global equity markets into broad retreat as a move above $50 (€40.6) a barrel looked increasingly certain. The latest surge was sparked by fighting in Nigeria and fears that supply from there could be disrupted, but events in the Middle East also remain a concern.
The rise in prices poses a threat to economic growth and, if sustained, will spark higher inflation. Irish motorists are facing the possibility of a seven cent per litre increase in the price of petrol within four weeks if prices hold at current levels.
Commenting on the news, Mr Conor Faughnan of AA Roadwatch said last night if the $50 a barrel price was sustained, Irish motorists would begin to feel the impact on their fuel bills within three to four weeks.
"Based on that estimate, we would expect prices at the pump to increase by around six or seven cents a litre," Mr Faughnan told The Irish Times.
Higher oil prices are also upsetting international equity markets. Yesterday's oil price surge pushed the Dow Jones Industrial Average index below the 10,000 mark, ending down 0.58 per cent at 9,988.54
"People are worried about higher oil prices cutting into profit margins," said Mr Drew Matus, senior financial economist at Lehman Brothers.
Energy analysts said the rise in oil prices, which have climbed 53 per cent this year, was far from over.
"We could see oil price spikes over $60 this winter if there are further supply disruptions," said Ms Deborah White, energy analyst at Société Générale in Paris.
Benchmark US crude futures peaked at $49.74 a barrel, exceeding the previous peak of $49.20 set last month. Benchmark Brent crude futures passed $46 for the first time.
Oil prices in real terms are still well below their all-time highs reached in the late 1970s.
Ms White said the oil markets were concerned about the latest violence in Nigeria, where rebels for the first time said they were targeting oil installations.
Royal Dutch/Shell, which produces half of the country's daily output of about 2.5 million barrels, admitted the security situation remained "tense" but said production was unaffected despite the evacuation of almost 250 "non-essential workers" from facilities.
Agip, a unit of Italy's ENI, was reported to be targeted by rebels, although it denied rebel accusations that it had lent equipment to government troops.
Nigeria is an important supplier of high-grade crude oil to the US and China, the world's two largest oil consumers.
The Nigerian fighting and the killing of another foreign worker in Saudi Arabia have re-ignited supply jitters from the world's largest oil-producing nation.
US oil production, refining and imports have been hit by the brutal hurricane season this year, which is expected to affect supplies for up to two months.
European equity markets hit their lowest levels for almost three months. The FTSE Eurotop 300 index lost 0.7 per cent to 985.28.
In London, the FTSE 100 index fell 0.8 per cent to 4,541.2. Frankfurt's Xetra Dax index lost 0.9 per cent and Amsterdam's AEX index fell 0.8 per cent. In Dublin, the ISEQ index closed down by just 0.13 per cent.
In Tokyo, the Nikkei 225 Average extended its losses into a seventh straight session, its longest losing streak since December 2002.
The benchmark closed 0.3 per cent down at 10,859.32.
Meanwhile, bond investors bought US Treasuries amid concern that higher oil prices could slow growth, giving the Federal Reserve less cause to continue raising interest rates.
The benchmark 10-year Treasury yield, which moves in the opposite direction to bond prices, fell to 3.993 per cent. - (Financial Times Service; additional reporting, Barry O'Halloran.)
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