By reducing oil production, Opec is only helping Russia

Just when we thought inflationary forces were softening, the price of crude oil has shot up sharply today in response to an announcement by Opec that it will try to reduce production. A barrel of Brent crude, which touched $120 last summer before falling back to $75 last month, reached $85 at one point today. Some analysts expect it to hit $100. Given that the benign forecasts for inflation which shaped Jeremy Hunt’s budget were predicated on a falling oil price, has the case for economic recovery now collapsed?

On the positive side, last year’s inflationary surge in Europe was more about gas than oil. The spike in wholesale gas prices last July and August was driven by the desperation of European countries to fill their gas storage facilities – and at a time when the facilities for receiving imports of liquified natural gas (LNG) were very limited.