Consumers feel squeeze from rising oil prices

Rising oil prices continued to take their toll on consumers yesterday as British Airways increased its long-haul fuel surcharges and the Chancellor's 1p cut in petrol duty was wiped out.

BA increased its fuel surcharge on long-haul flights by £10 for economy class and £20 for business and first-class passengers in the airline's third increase since December. It is not increasing surcharges for domestic or short-haul flights.

The move will see the economy surcharge on long-haul flights of less than nine hours rise to £85. For longer flights, the charge will be £98.

Nick Swift, BA's finance director, said: "As customers will know from the price at the petrol pumps, the cost of fuel has continued to rise significantly over the past three months. For us, fuel now represents over one-third of our costs and particularly affects our long-haul flights."

Mr Swift said BA would bear most of the costs of rising oil prices itself.

The price of oil hit a fresh two-and-a-half-year high yesterday, topping $122 a barrel, on unrest in the Middle East and Africa.

Soaring world oil prices have already wiped out the 1p fuel-duty cut announced in the Budget, according to figures announced yesterday by the RAC. The RAC said the average price of petrol had hit 133.55p a litre – 2p higher than the average price on 23 March, when George Osborne, the Chancellor, announced the duty cut.

The RAC's motoring strategist Adrian Tink said: "The volatile oil market has meant that drivers have seen very little benefit from the duty cut. Prices are continuing to spiral upwards with no end in sight to the high prices.

"The Chancellor made a great deal about the 'Fair Fuel Stabiliser' but it's only stabilising government revenue. Motorists are still going to be hit by the rising cost of fuel. And just to add to the pain, the delayed inflationary increase of 3.02p is due to come in on 1 January. Who knows what the price of fuel will be at this point?"

The rebellion in Libya has shut its oil exports and fuelled fears of disruption in other oil-producing countries. Oil prices were also pushed up by growing unrest in Nigeria over delayed elections.

Oil prices could surge to $200-$300 a barrel if protests in Saudi Arabia turn into major unrest, the country's former Oil minister warned yesterday.

"I don't expect this for the time being, but who would have expected Tunisia?" Sheikh Zaki Yamani told Reuters. He said there were more surprises to come and that Saudis' reluctance to join popular protests so far masked underlying political discontent among the populace.

Events in Africa and the Middle East overshadowed China's fourth interest-rate increase since October, which triggered a brief decline in oil prices earlier in the session.

China has grown to become one of the major consumers of oil and government measures to slow its economy would normally be expected to dampen prices.