Oil prices have surged to fresh two-and-a-half year highs after fierce fighting in Libya damaged the country’s largest oil field, it was announced Friday.
Britain’s north sea oil, Brent crude, was up 0.8 percent at 123.17 US dollars a barrel, while benchmark crude for May delivery was up 1 percent at 111.28 US dollars on the New York Mercantile Exchange.
The surge in oil prices is likely to be passed on at UK petrol pumps and add further pressure to already-squeezed disposable incomes, analysts said.
Oil output slowed to a trickle as forces loyal to Muammar Gaddafi struck the eastern Sarir and Messla fields.
The two fields are in the massive Sirte Basin region, which holds roughly 80% of Libya’s 46.4 billion barrels in proven reserves of conventional crude oil.
Most of Libya’s 1.6 million barrels a day of crude production have already been shut down during close to two months of fighting.
The constraint on supply is also combining with high demand for crude oil from emerging nations – such as China, India and Brazil.
The International Monetary Fund (IMF) last night issued a warning that the widening gap between demand and supply could push prices even higher.
IMF adviser Thomas Helbling said: “The recent trend increase in oil prices suggests that the global oil market has entered a period of increased scarcity.”
Soaring world oil prices have already wiped out the 1 pence fuel duty cut announced in the UK Budget, according to recent figures.
Increasing oil prices will see the Bank of England come under further pressure, as policymakers battle with rising inflation, which hit 4.4 percent in February, the analysts added.
While the Bank’s Monetary Policy Committee yesterday held interest rates for the 25th consecutive month in a row, some economists have pencilled in a May rate hike.