Oil prices on track for biggest weekly gain in four years as stocks remain under pressure

Oil is on track for its biggest weekly gain since 2022, as conflict in the Middle East disrupts markets and adds to fears of a fresh bout of inflation.

Brent crude trimmed earlier losses to sit near $88 a barrel this morning, as prices soared by over 20 per cent this week.

It followed a brief retreat on Thursday after the US signalled its intention to curb surging prices with measures that include allowing the Treasury to trade oil futures.

The Middle East conflict has sent energy markets into a tailspin, as Iran effectively shut the key shipping route the Strait of Hormuz.

This morning, Qatar’s energy minister warned that the war could double to $150 a barrel and ‘bring down the economies of the world’, pushing prices higher.

Economists have warned that a prolonged spike in oil and gas prices could add to inflation and push central banks to tighten policy.

Already, petrol prices in Britain have been nudging higher and energy firms have pulled many fixed tariffs for households – with warnings the Ofgem set price cap will rise sharply in July, if the conflict continues.  

Proposed measures by the US government to tame oil prices have done little to help the surge as ‘many doubt that government selling of oil futures would sustainably cap prices because the physical market ultimately drives pricing,’ said Ipek Ozkardeskaya, senior analyst at Sqissquote.

‘Benchmarks such as Brent crude and West Texas Intermediate crude oil are tied to real supply and demand, so if a conflict in the Middle East disrupts flows for a prolonged period – say weeks or months – especially through chokepoints like the Strait of Hormuz, refiners will still bid up physical barrels regardless of financial selling.’

Stocks have remained under pressure, with airlines taking a big hit this week with planes grounded and fuel prices soaring. US markets closed the session lower on Thursday. 

The FTSE 100 has suffered some bruising sessions this week, despite its high exposure to oil, defence and mining stocks. 

A strengthened dollar acts as a tailwind for many constituents with overseas earnings.

It opened 50 points higher this morning at 10,464, around 400 points off its recent high, but pulled back by late morning to trade down 10 points. 

‘Inflationary concerns are a particular drag for the same reasons as elsewhere, not least of which the lessening likelihood of a more immediate rate cut from the Bank of England to stimulate a largely ailing domestic economy,’ said Richard Hunter, head of markets at Interactive Investor.

Markets have slashed chances of a March rate cut from around 80 per cent to 20 per cent as they price in the impact of energy price shocks on inflation.

Oxford Economics’s Michael Saunders expects the shock to be ‘relatively short-lived’ but the Bank of England ‘is likely to remain on hold for now, keeping policy in restrictive territory.’

Hunter said: ‘Even so, there was some respite from the pressure of recent days as the FTSE100 opened higher, with selected cyclical, risk-on stocks leading the way. 

‘Sentiment nonetheless remains on a knife-edge and any further deterioration in the Middle East would lead to more investment tension.’

Even safe haven assets haven’t been able to escape the fallout from the conflict, with gold down over 3 per cent since the start of the conflict. 

The precious metal is up 0.61 per cent this morning to $5,107, while silver jumped 2.5 per cent to $84.21.