Yemen strike oil price spike: is this the end of the good times?

What happened to the price of oil and what it means for you

Houthi fighters ride a patrol truck in Sanaa (REUTERS/Khaled Abdullah)

What happened to the price of oil today?

Drivers watch out - the oil price spiked almost 6% today, following news that Saudi Arabia and its allies have launched air strikes on Yemen.

The price of oil has halved since last June’s peak above $115 dollars a barrel but today it jumped $3 in price, close to the $60 a barrel mark. It later fell back but was still trading $2.13 up for the day at $58.60.

Wait, what happened in Yemen?

Saudi Arabia started air strikes against Yemeni Houthi rebels, following the overthrow of the Yemeni president.

And what’s that got to do with oil?

At the moment, it’s got little to do with the supply of oil and more to do with people worrying about supply - which is what caused the spike today. In fact Yemen’s own oil price has been disrupted for months already and the conflict is a long way off affecting the biggest oil producers in the Middle East, like Saudi Arabia itself.

Lower petrol prices have helped to keep a lid on the cost of living

Why does it matter to me anyway?

Cheap oil has helped the UK economy get back on its feet after the last few years of economic hardship by lowering the cost of petrol and food. Cheap oil is one of the reasons why UK inflation flatlined at 0 per cent this week, making wages go further at the same time as the price of essential goods fell. Cheap petrol, extra pocketmoney, falling cost of food – what’s not to like?

Meanwhile industry gets cheaper energy to turn into extra profits that they pay tax on, plugging more money into the economy (just as long as no Jersey bank accounts are involved).

Falling global oil prices are putting tens-of-thousands of jobs at risk

Any downsides?

Oil producers aren't celebrating anything. At the same time as the oil price was spiking, Shell was planning to cut a further 250 jobs from its North Sea oil operations. The news comes just a week after Osborne included tax cuts and extra investment in the UK’s North Sea oil and gas companies in his Budget to try and shore up the embattled industry against consistently low prices.

Doesn’t the spike today show that the oil price is about to rebound?

Probably not, actually. A report by Barclays suggest that oil prices have settled into a new range and will likely stay low for the foreseeable. There are quite a few reasons for this: North American oil production has soared and there is slower growth in some emerging market countries such as China, which has cut demand. Increasing interest in energy conservation, including a more efficient power grid in China and more fuel efficient cars everywhere, and the development of oil alternatives such as ethanol have further cut demand.