British firms dealt blow as oil hits $120

British business was dealt a fresh blow as oil prices hit their highest level in two months.

the price of Brent Crude rose to $120.42 a barrel for the first time since March, lifted by the easing of Covid restrictions in China and European Union officials grappling with a ban on russian oil imports.

trading yesterday saw Brent Crude up nearly a dollar, reaching its highest level since the early weeks of the russian invasion of Ukraine.

the latest jump follows a 6pc rise last week, raising fears that it will lead to further increases in the rate of inflation – already at a 40-year high of 9pc.

Analysts said the rise was being driven by signs that Covid restrictions in China are being eased, helping to kick-start its economy.

this week also marks the start of the traditional Us ‘driving season’ when motorists all over America fill up their cars ahead of long holiday trips.

At the same time EU leaders met in Brussels yesterday to thrash out a sanctions package that includes an embargo on russian crude in response to Vladimir Putin’s war on Ukraine.

But last night leaders were struggling to agree an oil embargo as hungary –– which enjoys a close relationship with Putin – refused to back the sanctions.

Concerns over the oil price come amid fears households across the UK could face powercuts this winter if russia continues to restrict energy supplies.

there are worries that electricity in Britain could be rationed early next year, pushing Business secretary Kwasi Kwarteng to plead with the UK’s last coalfired power stations to delay their closure to keep the lights on.

there are also concerns that oil prices, which have been above $100 a barrel since late February, could feed into higher costs across the economy if they remain elevated.

Justin Urquhart stewart, cofounder of seven investment Management, said higher crude prices will cause ‘extra costs to feed into the system’ and squeeze company profits.

he said firms were faced with ‘two choices’ – absorbing the higher cost of fuel and taking a hit to their profit margins, or ‘putting prices up’ and risk denting demand from customers.

‘it’s very difficult indeed,’ stewart said, adding that if companies did not know what was going to happen next they were ‘not going to take more risks’.

he also cautioned there would be ‘less demand coming through’ from consumers due to nervousness about the cost of living.

‘things look a little bit bleak,’ stewart said.

high oil prices will be bad news for motorists after prices at the pump hit record highs last month.

it will also weigh on the profits of supermarkets, which like other businesses will see costs for transport and energy mount.

Additionally, households will continue to face sharp increases in energy bills, one of the biggest drivers of inflation.

Meanwhile, the escalating cost of crude is expected to hit airlines, which are already struggling to recover from a hammering during the pandemic when travel restrictions left planes on the ground and their owners bleeding cash. John strickland, an aviation analyst, told the BBC rising oil prices would have ‘more and more of an impact’ on the aviation sector over the summer season, warning carriers could either see their profits wiped out or losses widen as a result of surging fuel costs.

‘the red ink is going to flow even more,’ strickland said, adding that some smaller, weaker airlines could go bust.

he also warned that carriers could look to cut costs into the winter months as they would be ‘the most challenging’.