The global oil price spiked upwards yesterday as fears grew of a looming conflict between Israel and Iran and constraints on supply started to bite.
Brent crude rose in trading by $2.16 to hit $115 a barrel, the highest since May.
Israeli newspapers reported at the weekend that the Prime Minister Benjamin Netanyahu is close to ordering a military strike on Iran's nuclear facilities, and on Sunday the country's Deputy Foreign Minister said the diplomatic effort to halt the Tehran regime's enrichment of uranium should now be declared dead. Iran has threatened to close the Strait of Hormuz, through which 40 per cent of the world's seaborne oil supplies pass, if it is attacked by Israel.
The supply of oil has also been constrained of late by a slowdown in North Sea production. Output from the 12 North Sea streams is set to fall by 17 per cent next month thanks to maintenance and natural decline.
The Brent oil price fell to $90 in June, but has been rising ever since.
The future path of oil prices is complicated, however, by signs of slowing demand. Last week the International Energy Agency cut its 2013 production forecast by 400,000 barrels per day, citing the global economic slowdown.
That is reinforced today by the Centre for Economics and Business Research, which has slashed its forecast for global growth in 2013 to 2.7 per cent, down from the 3.2 per cent it expected in April.
Some analysts said yesterday that the weakening global growth outlook might prompt the monetary authorities in the US, China and Europe to do more to boost growth, which would prop up global energy prices.
"Hopes of a stimulus are underpinning prices for oil and other commodities markets," said Carsten Fritsch of Commerzbank.
The Bank of England voted to pump a further £50bn into the UK economy in July and the European Central Bank and the People's Bank of China cut interest rates in the same month.
The chairman of the Federal Reserve, Ben Bernanke, has signalled that he is prepared to do more to support the US economy should the outlook weaken.
The think-tank CEBR forecasts the rate of annual growth in China will slow to 7 per cent by 2016, well below the average over the past decade of rapid economic expansion.