Reeves has criticised heating oil companies, some of which are only selling in large quantities – while consumers want to buy smaller amounts to top up their tank after the surge in crude oil prices.
Some companies are saying that you can only buy a larger quantity. They won’t sell in small quantities, whereas at the moment, many people want to top up a little bit, at the higher price, but not fill up their whole tank. So we’re looking at some of those market practices which aren’t necessarily about price, but they’re also about quantity. But we’ve been using the last few days to properly understand what is happening, in that, market, and after the meeting today, we will make decisions on what further action, is, is needed.
I would say to businesses, providing heating oil, that it is not right to say that you will only sell in large quantities at the moment. That’s not fair on customers. And I would encourage consumers to push back and to shop around in circumstances where they’re being told they can only buy a large quantity at a very high price.
Reeves: 'Nothing off the table' in terms of energy support for consumers and firms
The government is also looking at support schemes for households and businesses hit by the surge in energy prices since the US and Israel began their war on Iran 1 1/2 weeks ago.
Reeves said there is “scope” in the public finances for a short-term support scheme if required.
We will always make sure we do everything we can to protect consumers but also to ensure our national security as an economy
We’re in a stronger position since I became chancellor to respond to shocks like these and we’re in a stronger position in many ways than when Russia invaded Ukraine.
Talking about support for businesses in energy-intensive industries, the chancellor said:
So there is other work going on in terms of business support, in both my department [the Treasury] and the department for business and trade.
Nothing is off the table at this stage. We are looking at targeted support as well as broader measures but it is just to early to say what is needed.
Reeves said the government is dusting down plans began under the last government during the 2022 Russian energy shock for targeted support schemes, which were not ready back then.
[That] makes it more likely to be able to use targeted support this time.
We are looking at all of those things. But it’s too early to give you different scenarios and different options for those scenarios.
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Reeves: UK ready to release strategic oil reserves
The UK stands ready to release strategic oil reserves as part of a broader international effort to curb the surge in crude prices, according to Rachel Reeves, the UK chancellor. She is being quizzed by MPs on the Treasury committee.
I’ve been very clear the UK is willing to play its part in using those reserves to put downward pressure on oil pressures and make sure supply remains strong.
She warned war in the Middle East will hit the UK economy.
It’s certainly not good for the british economy to have trade disrupted, especially when so much oil and gas comes from that part of the world
But, she said it’s says too early to gauge the impact:
At this stage i think it would be unwise to speculate on what the impact on inflation and interest rates would be.
She also said the UK is less reliant on international energy markets than at the time of Russia’s Ukraine invasion.
We are now less reliant on international, energy price movements than we were when Russia invaded Ukraine. Because we’ve invested more in homegrown, renewable energy, which is not subject to this price volatility because it’s purchased through contracts for difference. Over the next few years, we will even be more insulated as more of that renewable energy comes online, and as we build the, the infrastructure to better connect it to the grid. And that will be facilitated, of course, by the Planning and Infrastructure Act, which which was passed at the end of last year.
But even in the last five years, we have become less reliant on those international energy markets. That’s not to downplay the significance in movements in global oil and gas prices. But the context is slightly different than it was when Russia invaded Ukraine.
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How Iran has used the strait of Hormuz to throttle oil and gas – a visual guide
Global oil markets have recorded some of the biggest price swings in history this week after the US-Israeli war with Iran throttled the flow of Middle Eastern crude through the strait of Hormuz.
The narrow waterway south of Iran is one of the world’s most important trade arteries, through which a fifth of global oil and seaborne gas is shipped from production facilities and refineries in the Gulf to buyers around the world.
The strait carries just over 20m barrels of oil a day, making it the busiest oil route after the strait of Malacca between Malaysia and Indonesia. It is also the most important trade route for cargoes of liquified natural gas (LNG), shipped on super-chilled tankers.
But unlike the Malacca corridor – which carries roughly 23.2m barrels a day to buyers in China, Japan and South Korea – the Hormuz strait is far more difficult to circumvent, making it the biggest chokepoint in the global energy system.
The waterway lies below Iran and above Oman to the south, tapering to just 21 miles wide at its narrowest point. It is through this passage that crude and petroleum products from the refineries and production facilities of the world’s biggest petrostates need to pass to reach their global market.
Susannah Streeter, chief investment strategist at the Wealth Club, has looked at the moves in markets.
Erratic energy prices are keeping investors on edge as the war in Iran rages with no clear end in sight. Brent crude is still largely holding onto its dramatic decline, but it’s staying highly volatile. In the past 24 hours it’s dipped as low as $83 a barrel before heading to $94 and retreating back to around $90. There’s fresh concern about chaos in the market given how seriously production is being disrupted. The FTSE 100 has fallen back in early trade as investors remain highly jittery about the knock-on effect for the global economy.
Saudi Aramco has sounded the latest warning bell about an energy shock, with CEO Amin Nasser saying on an earnings call that it was the biggest crisis oil and gas producers have faced. He said there would be catastrophic consequences for the industry, and the consequences for the world economy would be more drastic the longer the conflict continues. Supplies are seizing up, with the key Strait of Hormuz remaining impassable, and storage facilities quickly filling up across the region. Iran’s Revolutionary Guard has again vowed to destroy ships using the passage and President Trump’s pledge to escort ships for now seems unworkable on a mass scale. The US military has destroyed a fleet of mine-laying ships, but as attacks on US allies continue, shipping companies look likely to give the channel a wide berth until there’s a resolution to the conflict.
Turning to inflation and the interest rate outlook, Streeter said:
Amid the uncertainty and worry about the war, the repercussions on a vast array of goods and services are being assessed given the warnings that prices are set to increase for fuel, energy, freight, airfares and food. Inflation fears are back front and centre and it looks like policymakers will stay extremely wary when they meet next week to decide on interest rate policy. There’s a raft of central bank meetings taking place, and high caution will be the name of the game.
For the Bank of England, there’s likely to be a real change of heart among policymakers. A rate cut was largely expected given the sluggish economy and worsening jobs picture. Now they are grappling with a stagflation scenario, making decisions about the path ahead highly tricky. UK borrowing costs have been heading higher, with gilt yields climbing, amid expectations that interest rates will be here to stay higher for longer.
UK and eurozone government bond yields rise as rate expectations shift
UK and eurozone government bond yields have also risen again in light of growing inflationary pressures and shifting interest rate expectations.
The yield, or interest rate, on the benchmark 10-year gilt (the name of UK government bonds) is up 9 basis points (bps) to 4.64%, while the two-year bond yield is 11bps higher to 3.97% – reversing Tuesday’s big drop.
Germany’s bond yields have also gone up, with the two-year Bund yield rising 7bps to 2.34%, as the odds of an interest rate increase from the European Central Bank have increased.
Markets have now fully priced in the chance of a rate hike by September, and see an 80% chance of an increase in July.
The 10-year German yield is up 4bps while the Italian 10-year yield has jumped 10bps.
Investors see the UK has more exposed to an energy price shock than other European countries, due to its heavy reliance on gas and weak public finances. The two-year gilt yield has risen by 46 basis points this month, while equivalent French and German bond yields have climbed around 35bps and US debt is up 21bps.
Emma Wall, chief investment strategist at Hargreaves Lansdown, said:
The key to determining longer term impact, not just for equity markets but also bond markets and indeed inflation and economic growth, will be unlocking the Strait of Hormuz, which remains practically impassable.
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UK mortgage rates rise above 5%, highest since last summer
Mortgage rates in the UK have risen to levels not seen since last summer, as the odds of an interest rate cut from the Bank of England this year further receded.
Markets only see a 6% chance of a rate cut at the Bank’s next meeting on 19 March, down from 80% before the US and Israeli started attacking Iran, driving oil and gas prices sharply higher, which threatens to raise overall inflation. The probability of a rate reduction this year has fallen to 20%, from 50% on Tuesday.
This is now reflected in higher mortgage rates – and nearly 500 mortgage deals (472) have been pulled from the market in the past couple of days, in the biggest fall since the aftermath of the 2022 mini-budget, according to the financial information provider Moneyfacts.
It says the average two-year fixed homeowner mortgage rate is 5.01% – up from 4.84% on Friday and the highest level since it was also 5.01% on 6 August last year.
The average five-year fixed homeowner mortgage rate was 5.09%, up from 4.96% on Friday and the highest since late June.
The overall average Moneyfacts mortgage rate opened this morning at 5.04% – up from 4.91% on Friday and the highest level since early August.
Adam French, head of consumer finance at Moneyfacts, said:
Recent days have been some of the most turbulent in the UK mortgage market since the aftermath of the September 2022 mini-budget.
In the last 48 hours, almost 500 residential mortgage products have been withdrawn as lenders reacted to rapidly rising swap rates. However, the scale is nowhere near the shock seen in late September 2022 when 935 products, which accounted for more than a quarter of the market at the time, disappeared in a single day.
Many of these deals are likely to return within the next few days and weeks as lenders adjust their pricing to higher rate expectations.
It’s unwelcome news for borrowers, as the prospect of falling mortgage rates has quickly given way to rate rises. How far they could go is now heavily dependent on how global markets and inflation expectations evolve as conflict in the Middle East unfolds.
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One G7 source told Reuters that while no country currently faces a physical shortage of oil, prices are rising sharply and that leaving the situation as it is is not an option. They suggested that countries like China and India, which are not members of the International Energy Agency, could also be approached.
However, any actual release of reserves cannot happen immediately because decisions on total volume, country allocations and timing require further discussion. The source said:
The IEA secretariat is expected to propose scenarios, based on expected market impact, and outreach may extend to non-IEA members like China and India.
Oil prices rise to $90 a barrel despite G7 statement
Oil prices are trading higher again, returning to $90 a barrel, as markets doubted whether the International Energy Agency’s reported plan for a record release of oil reserves could offset potential supply shocks from the Iran war.
Brent crude has see-sawed this morning, dipping earlier but has now risen 2.5% to $90.05 a barrel.
This is despite energy ministers from the G7 group of nations releasing a statement after a meeting with the IEA on Tuesday that they support, in principle, proactive measures to address oil supply and market volatility, including the use of strategic oil reserves.
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G7 energy ministers say they support in principle use of strategic oil reserves
News just in: the G7 group of nations said today that they supported, in principle, the implementation of proactive measures to address oil supply issues and market volatility, including the use of strategic oil reserves.
Energy ministers from the group held a virtual meeting with the International Energy Agency on Tuesday to discuss the impact of the Iran war on energy markets and supply.
G7 energy ministers said in a statement emailed to Bloomberg:
Working alongside the IEA, we are vigilantly monitoring energy market trends and are coordinating within the G7 and with our international partners, IEA member countries, and beyond.
They said they “warmly welcome today’s meeting of the IEA governing board, which provides a crucial opportunity for member countries to assess the current security of supply and market conditions”.
The G7 ministers added:
In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves. G7 members will carefully consider the recomendations.
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Introduction: Oil prices retreat, Asian shares rise after report of planned IEA oil reserve release
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Oil prices have pulled back and Asian shares rose after the Wall Street Journal reported that the International Energy Agency has proposed the largest release of oil reserves in its history to bring down crude prices.
The release would exceed the 182m barrels of oil that IEA member nations released to the market in two batches in 2022 after Russia launched its full-scale invasion of Ukraine, according to the newspaper. The IEA called an extraordinary meeting of members on Tuesday, with a decision expected today.
Brent crude dipped 0.27% to $87.56 a barrel in early trade.
Kerstin Hottner, Vontobel Assset Management’s head of commodities, told Reuters:
Several major questions loom over the oil market’s trajectory. Chief among them is the timing of safe passage for vessels through the Strait of Hormuz, a critical chokepoint for global oil supply.
Another concern is the possibility of infrastructure damage... Even if major hostilities subside, the prospect of ongoing low-level Iranian drone attacks on energy infrastructure could prolong market instability into next year.
In Asian stock markets, Japan’s Nikkei and South Korea’s Kospi both climbed 1.4% while the Shenzhen exchange gained 0.78% and Hong Kong’s Hang Seng dipped 0.16%.
Gas prices have risen slightly, with UK natural gas up 1.8% to 122.82 per therm, while European gas is 2.8% ahead at 48.72 per megawatt hour.
Gold edged higher as investors sought out safe-haven assets again. Spot gold rose 0.1% to $5,924 an ounce.
Nikos Kavalis, Singapore managing director of Metals Focus, told Reuters:
I think it’s very likely that we’ll see gold get to over $6,000 an ounce by the third or fourth quarter this year.
Iran has effectively shut the Strait of Hormuz, through which a fifth of world oil and seaborne gas shipments pass. Hundreds of tankers are stranded there.
The US military said it attacked and destroyed 16 Iranian mine-laying vessels near the strait of Hormuz, amid reports that Iran has begun laying explosive devices in the strategically vital waterway.
Markets are waiting for US inflation figures, which are expected to show that the headline rate stayed at 2.4% last month.
The Agenda
9.45am GMT: Treasury Committee to quiz Rachel Reeves about spring forecast
12.30pm GMT: US inflation for February (previous: 2.4%, forecast: 2.4%)
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