Oil and gas prices have seen a dramatic rise as financial markets give their first reaction to the war in the Middle East.
Global stock markets were down across the board but some sectors like energy and defense helped limit losses.
Brent crude rose 13% to $82 a barrel in early Asian trading. It then settled around the $79 mark.
That’s despite confirmation from two major oil and gas-producing nations that Iran’s airstrikes on their state-owned infrastructure have hit production.
Latest Markets: Key developments as war grips the Middle East
The world’s largest oil refinery in Saudi Arabia was shut down after it was damaged.
Day-ahead natural gas delivery contracts for the UK were up more than 30% early Monday afternoon while April delivery was up more than 50%.
The rise was fueled by news that Qatar’s state-owned energy firm has suspended all liquefied natural gas (LNG) production.
The country accounts for about 20% of the global LNG supply delivered by ship.
This means we face the prospect of bigger bills ahead to sustain higher wholesale prices for an extended period of weeks.
For those in the price bracket it’s worth remembering that there won’t be any rises in household bills until early July. Because the limit from April to June is already fixed.
It will take several weeks of higher prices to hurt the outlook for bills.
As for oil, the RAC said average unleaded petrol prices were expected to rise by 1p a liter this week due to earlier market changes, adding that at current wholesale oil price levels there could be a further 2p increase but it was too early to call.
Again, it will take several weeks of higher prices to crystallize that expectation.
Stock market values were hit globally, with the FTSE 100 in London down 1.2% to 10,780.
Defence-facing stocks saw big gains, with BAE Systems up 6%. Energy firms did better on the back of those higher wholesale prices, though the prospect of a prolonged supply disruption limited gains later in the session.
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Financial and travel-related stocks were the worst hit. British Airways parent IAG was down 5.5%.
It was a similar story on the continent, where major indices saw large falls in London. The DAX in Germany and the CAC 40 in Paris were down more than 2% as their trading sessions ended.
In the US, the broader S&P 500 was down just 0.2%.
Stock markets, analysts say, are reflecting risk flight, although miners of the precious metal benefited from a 2% rise in the price of ‘safe haven’ gold earlier in the day.
The dollar, Japanese yen and Swiss franc also found support.
John Wynne Evans, head of market analysis at investment manager Rathbones, said of the outlook: “Everything depends on the Strait of Hormuz.”
It’s a shipping lane off the Iranian coast that normally sees hundreds of ships pass through it a day – now the traffic is mostly empty as ships anchor for their own safety amid the cancellation of insurance policies.
“The longer it’s closed, the worse the consequences”, Mr Evans said of the strait. “For now, inventories and limited restocking options provide some buffer, but the situation is well balanced.”
