As the pound fell, oil prices surged beyond $80 (£59) a barrel, reaching their highest level in three years.
Brent oil, the worldwide benchmark, reached an all-time high of $80.69 on the day, the highest level since October 2018.
Prices have been climbing for seven days in a row as a result of Europe’s energy crisis.
Oil prices, according to analysts, will continue to climb as demand grows and supply tighten.
Brent might approach $90 per barrel by the end of the year, according to Goldman Sachs, which also warned that increased input costs, higher gas prices, and slower growth would likely weigh on European corporate profit growth in 2021.
“When growth slows, firms find it more difficult to pass on rising input costs, which is the primary risk to net income margins,” according to the Wall Street bank.
It occurred after the pound fell 1.3 percent to just under $1.3530 versus the dollar on Tuesday, the largest one-day decline in history on inflation fears. As investors sought safe haven in the dollar, it fell to its lowest level since January.
Stock markets fell as well, with European indices dropping and equities on Wall Street plummeting as well.
“Rising inflation fears are making sterling-denominated assets less appealing,” said Jordan Rochester, currency analyst at Nomura.
Brent crude, on the other hand, has already risen by almost 55 percent this year. The West Texas Intermediate (WTI) crude oil price has also risen to about $75 per barrel.
At the onset of the epidemic, oil prices plummeted. They dropped below zero for the first time in history in April of last year, when demand was wiped out by the shutdown while producers continued to pump petroleum from their wells.
However, as economies across the world have begun to reopen, demand has risen in recent months.
Hurricanes Ida and Nicholas, which passed across the Gulf of Mexico and damaged US oil infrastructure, have also impacted global oil supply.
Oil has become a comparatively cheaper alternative for power generation due to a huge spike in natural gas costs, which has increased demand.
The Vitol Group, the world’s largest independent oil trader, predicted that global crude consumption will rise by 500,000 barrels per day this winter.
“Similarly, India, the world’s second-largest crude oil importer, increased its imports to a three-month high in August, as refiners continue to stockpile ahead of expected future demand,” said Naeem Aslam, chief market analyst at Think Markets.
Opec, the oil exporters’ association, has predicted a spike in demand, although it anticipates it to be slightly smaller, at around 370,000 more barrels per day.
Several members of the Opec+ group of producers, which includes ally Russia and several other nations, reduced output during the epidemic and have subsequently had difficulty ramping up production to meet rebounding demand.
An Uncertain Future
According to the RAC, gasoline costs in the UK have reached an eight-year high, owing to shortages of goods vehicle drivers in the country.
The average cost of petrol has risen to 135.3p per litre, while the average cost of diesel has risen to 136.9p.
Because crude is needed to make gasoline and diesel, the price of oil is closely related to the cost of wholesale fuel.
The situation for drivers, according to RAC fuel spokesperson Simon Williams, is “very grim.”
“With oil prices increasing to near three-year highs, wholesale prices are being driven higher, which means retailers are paying more for the same amount of fuel than they were just a few days ago,” he added.
“Regardless of the present supply issues, we may see higher forecourt pricing in the next days.”