Oil prices have risen to around six-month highs putting producers in line to increase profits in a way that could fuel demands for an increase in the windfall tax while stoking inflation.

Brent sold for $90.80 per barrel this morning following a period which has seen the price rise by more than 15%, from $76 per barrel at the start of the year.

The price fell to $89.80 per barrel in afternoon trading. However, that left it up around $7 per barrel up on the average price recorded last year. Oil and gas firms operating in areas such as the North Sea could enjoy a significant increase in revenues this year if they maintain output levels.

BP said that it had increased oil production in the first quarter compared with the preceding three months, without giving details. The company has a big North Sea business.

Any increase in the profits made by oil and gas firms operating in the area would put the sector back in the spotlight as the UK prepares for the General Election that must be held within months.

Labour has threatened to increase the rate of the windfall tax introduced in 2022.

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A sustained increase in oil and gas prices on an annual basis could help stoke inflation following a period in which the cost of living crisis seemed to be easing.

A rise in the rate of inflation would leave consumers facing higher bills and reduce the likelihood of the Bank of England cutting interest rates.

The oil price rise has been driven by concerns about the geopolitical outlook amid the conflict in Gaza and Russia’s war on Ukraine.

Prices fell on Monday as hopes grew that a cease fire would be agreed in Gaza. They increased early on Tuesday after prime minister Benjamin Netanyahu said Israel would proceed with an attack on Rafah.

The comments stoked concern about the prospect of a wider conflict breaking out in the Middle East. Iran is believed to be preparing to retaliate for an attack on its consulate in Syria, which it has blamed on Israel.

Ann-Louise Hittle, Vice President, Oil Markets at Wood Mackenzie said the risk of an escalation after the attack increased the risk premium in the oil price.

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The tension comes at a time when the energy consultancy expects global demand to grow faster than supplies.

“Wood Mackenzie’s analysis shows a tight supply and demand balance in the oil market for the remainder of the year which provides support for the risk premium in the price,” noted Ms Hittle.

Demand for oil and gas has remained strong in the US, Europe and China despite concerns about the impact of inflation on economies around the world.

The balance between supply and demand tightened after members of the Opec + suppliers cartel decided to cut production in 2022 to support prices. The cuts were extended in March.

Producers in the US have refrained from increasing production after facing pressure from investors to cut spending.

The Brent crude price averaged $101 per barrel in 2022.

The price fell to an average $83 per barrel last year amid fears about the outlook for the global economy as central banks raised interest rates to tackle inflation.

Reuters noted that Mexico’s state-owned producer Pemex is set to compound the pressure on global supplies by cutting exports to help meet domestic consumers.