Oil price climbed above $80 (£59) a barrel on Tuesday, hitting their highest level in three years as the pound slumped.
Brent crude, the international benchmark, rose to as much as $80.69 on the day, the most since October 2018.
Oil price have been rising for seven consecutive days on the back of the energy crisis in Europe.
Analysts believe that oil prices will continue to rise amid surging demand and tight supplies.
Investment bank Goldman Sachs said Brent could hit $90 per barrel by the end of the year, warning that rising input costs, higher gas prices and weaker growth were likely to weigh on European corporate profit growth for 2021.
“When growth slows, it becomes harder for companies to pass on higher input costs, which is the main risk for net income margins,” the Wall Street lender said.
It came as the pound suffered its biggest one-day drop against the dollar on Tuesday, tumbling 1.3% to just under $1.3530 amid inflation fears. It was its lowest since January, as investors sought safe haven in the dollar.
Share markets also headed lower, with European indexes in the red, and stocks on Wall Street likewise falling.
Jordan Rochester, the currency analyst at Nomura, said: “Rising inflation concerns are making sterling-denominated assets less attractive.”
Brent crude on the other hand has already gained about 55% for the year to date. West Texas Intermediate (WTI) also rose to around $75 a barrel.
Oil prices slumped at the start of the pandemic. In April last year, they fell below zero for the first time in history as lockdown wiped out demand while producers continued to pump crude from their wells.
