Consumers brace for another cost of living squeeze as oil prices surge to a 7 year high

Brent crude surges above $89.5 a barrel due to supply constraints and geopolitical tensions. Forecasts that oil could hit as much as $120 a barrel. Petrol prices hit £146.06 and are set to surge higher in weeks to come. UK Natural gas prices at a two week high of 220 a therm, quadruple the level a year ago. BP and Shell shares surge by 4%. Clamour for a windfall tax intensifies as IMF recommends targeted support for UK households.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown: “Consumers are belting up and bracing themselves for a fresh squeeze in the cost of living as a jump in the oil price is set to see forecourt prices ticking up again. With price rises coming from all directions, the prospect of filling up at the pumps becoming yet more expensive will be hard to swallow, especially for commuters steeling themselves for the return to the office as plan B restrictions are lifted.

The price of oil is rising up again back towards levels last seen consistently more than seven years ago with a barrel of Brent crude surging past $89.5 dollars, heading towards $90 a barrel. The escalating situation surrounding Ukraine, with the standoff continuing between Russia and NATO members had already pushed up the price, but supply constraints with a drop in US inventories registered, has seen it edge up by another 1.5% today.

Although the price of a barrel of Brent won’t immediately translate to mirror a similar price hike at the pumps, due to other factors to consider, such as refining capacity and demand for other oil fractions, petrol prices do follow oil’s trajectory albeit on a flatter curve. After Brent reached a three year high in October of $86.9, prices at the pumps hit a 12 month high a few weeks later of 147.72p and diesel at 150.96p. Already prices are edging back close to those levels, with average petrol prices at 146.06p and diesel 149.42p, according to the RAC.

Fresh financial pain in terms of rising prices at the pumps could still be to come, with forecasts piling up that oil will go above $100 dollars a barrel this year, and reach as much as $120 dollars. With the price of oil also rising it means households are being pummelled in all directions as the energy crisis mounts. UK natural gas prices may have eased slightly to below 220 pence a therm – almost half the record high reached in December, but they are still the highest level seen in two weeks, amid concerns about the stability of Russian supplies into Europe. Compared to a year ago prices are around four times higher and the lifting of the energy price cap is looming which is set to see bill for households and business surge again.

The outlook is so bleak for cash strapped consumers, even the International Monetary Fund has now waded into the political waters surrounding high energy bills, urging the UK government to bring in targeted help for poorer households. Any increase to the warm homes grants would still be paid for by other energy bill payers, which is why there is increasing clamour for a windfall tax on the big North Sea oil and gas producers like Shell and BP.

On the face of it as the price of oil and gas surges higher, it’s boom time for energy giants, with BP and Shell’s share prices surging by more than 4%. But what the companies will do with the incoming cash windfall which will be closely watched. A growing number of investors have environmental concerns increasingly at the heart of their strategies and if it doesn’t significantly up capital expenditure on greener cleaner forms of energy, they risk falling out of favour in portfolios. That’s why they will continue to lobby against a windfall tax, as it could eat into the available cash for that investment. However, with this argument bumper pay-outs to shareholders will be harder to justify.‘’