Oil prices remained above the $100 mark on Monday morning after President Trump hailed a deal with Russia’s President Putin that would lead to the supply of millions of barrels of diesel to the US and global markets.
Brent crude oil futures, a benchmark for international prices, fell by about 0.6 per cent to $104 per barrel.
This keeps oil prices at high levels as futures were at below $70 per barrel before the Iran war in late February.
Oil prices heavily influence the global inflation outlook given their significance to critical goods and services. Inflation in the UK is expected to top four per cent in the early parts of next year, according to the Bank of England, while the energy price cap is currently projected to rise by 21 per cent from January.
Inflation risks highlight the UK economy’s vulnerability to President Trump’s decisions and global conflicts.
On Friday, Donald Trump said he had a 90-minute call with Vladimir Putin, in which Russia agreed to supply more than 2.25m barrels of diesel to the US, which is equivalent to less than a day of supply in the US. Russia agreed to supply another 500,000 tonnes of diesel, approximately 3.75m barrels, next month.
The US president later claimed that Ukraine’s President Zelensky and President Putin had agreed to a ceasefire for attacks on energy infrastructure, with Trump attributing a rise in diesel prices in America to Ukraine’s strikes in Russia.
Zelensky said the ceasefire was “news” to him and later said that Russia had hit a power plant in Kyiv after Trump’s impromptu announcement. He also told ABC News that the rise in international energy prices was “because of the war in the Middle East, of the blocking of Hormuz”.
Prime Minister Andy Burnham said he welcomed the call for a ceasefire and added attacks were coming from Russia.
Oil price spike to lead to spending erosion
Trump also piled pressure on Zelensky by saying the Ukrainian leader should step aside. Zelensky said he would announce elections if Russia agreed to a 60-day total ceasefire.
Separately, strikes by the Houthis, an Iran-backed militia, at Riyadh airport in Saudi Arabia has further intensified hostilities in the Middle East, which shows fewer signs of drawing to a close.
The fractures in Western relationships come at a difficult time for Burnham and Chancellor John Healey as the Office for Budget Responsibility adjusts its economic forecasts ahead of the Budget.
The Institute for Fiscal Studies said on Monday that the Chancellor would likely need to find £35bn extra in spending by 2031 in order to prevent real term cuts to department budgets as higher inflation is set to erode the value of expenditure.