Proactive Investors - Brent crude oil prices fell below $90 a barrel on Monday in response to heightened Middle East tensions after Iran launched missile strikes on Israel.
But City analysts have warned that any short-term retraction on prices could be temporary and Brent crude – which serves as a benchmark for global oil prices – could resurface above $100 a barrel.
“Money managers have been upping their long positions on US crude futures and options lately in anticipation of a possible threat to supply,” said Vitoria Scholar, head of investments at interactive investor. “There are worries about disruptions through the Strait of Hormuz in particular which sees around 20% of global oil pass through the waterway.”
It adds a layer of risk to the UK economy, with potentially higher oil prices threatening the Bank of England’s progress in bringing down inflation.
Scholar said: “Higher oil has the potential to push up prices across various parts of the economy again, not just in terms of petrol pump prices, but also in other industries like transportation, manufacturing, and food production.”
Iran is a major contributor to global oil supply and is an important OPEC member.
Oil and gas stocks were down across the board on Monday, with British supermajors Shell (LON:RDSa) PLC and BP (LON:BP) at the top of the fallers list.