Oil prices have soared to fresh two-and-a-half year highs after fighting in Libya damaged the country’s largest oil field.
Brent crude was up 0.8 per cent at $123.17 a barrel, while benchmark crude for May delivery was up one per cent at $111.28 on the New York Mercantile Exchange.
Oil output slowed to a trickle as forces loyal to Muammar Gaddafi struck the eastern Sarir and Messla fields. The two fields are in the massive Sirte Basin region, which holds roughly 80 per cent of Libya’s 46.4 billion barrels in proven reserves of conventional crude oil.
Most of Libya’s 1.6 million barrels a day of crude production have already been shut down during close to two months of fighting.
The constraint on supply is also combining with high demand for crude oil from emerging nations - such as China, India and Brazil.
Oil price increases are likely to be passed on to UK petrol pumps and add further pressure to already-squeezed disposable incomes.
The International Monetary Fund (IMF) has issued a warning that the widening gap between demand and supply could push prices even higher.
IMF adviser Thomas Helbling said the “recent trend increase in oil prices suggests that the global oil market has entered a period of increased scarcity”.
Soaring world oil prices have already wiped out the 1p fuel duty cut announced in the Budget, according to recent figures.
The average price of petrol is now 133.55p a litre, which is 0.02p higher than the average price on March 23 when the duty cut was announced, the RAC said.
Increasing oil prices will see the Bank of England come under further pressure, as policymakers battle with rising inflation, which hit 4.4 per cent in February.
While the Bank’s Monetary Policy Committee yesterday held interest rates for the 25th consecutive month in a row, some economists have pencilled in a May rate hike.