- The Washington Times - Tuesday, August 8, 2006

Oil prices yesterday jumped more than $2 a barrel to a record of $78.30 in London after BP shut production at Alaska’s largest field for what could be several months to repair corroded pipelines.

Refineries on the West Coast reported no immediate shortages, but might have to scramble to get supplies of crude within weeks if the outage persists, analysts said. The incident affecting only 0.5 percent of world oil production highlights the tensions and fears dominating the oil markets during a time of tight supply threatened by hurricane season in the Gulf of Mexico and war in the Middle East.

“The market is looking for some excuse to move north,” said William Adams, chief energy strategist at LaSalle Futures Group Inc. “Especially in California, where they have the highest gas prices, they are really going to be impacted.”

Gas prices in California average 12 cents higher than the rest of the nation, where the price of regular grade rose yesterday to $3.04 a gallon, three cents short of a record, the Energy Information Administration said.

It may take “some months” for BP to replace up to 16 miles of corroded pipeline at BP’s Prudhoe Bay facilities in Alaska, Citigroup analysts said.

BP said it does not know how long the pipeline will be out of operation, but analysts said the company’s decision Sunday night to completely shut down 400,000 barrels a day of production from Prudhoe Bay suggests it is expecting a prolonged outage. The BP action suspended nearly half of Alaska’s production and 8 percent of U.S. production overall.

“The market is already tight, and the news from Alaska is the last thing we needed to hear,” said Michael Fitzpatrick, a vice president at Fimat USA. “This comes after a series of threats to supply. A heat wave or storm could push prices above $80 in a heartbeat.”

Crude oil for September delivery surged $2.22 to $76.98 a barrel on the New York Mercantile Exchange, the second-highest price since trading began in 1984. Brent crude oil for September settlement rose $2.13 to a record $78.30 a barrel on the ICE Futures exchange in London.

“The only saving grace is that we are near the end of the driving season,” said Jason Schenker, an economist with Wachovia Corp. “The lost production accounts for only 2 percent of U.S. daily consumption” of nearly 21 million barrels a day, he said. “This is nothing compared to the disruption we would see if there is conflict with Iran.”

U.S. Energy Secretary Samuel W. Bodman said the administration would make oil from the Strategic Petroleum Reserve available to California refineries if they need it.

“I’m obviously concerned about” the shutdown, Mr. Bodman told reporters yesterday. “We have not had any requests for additional supply, but it would be made available, and we can get it to the West Coast.”

Some analysts said there is no easy way to get reserves to the West Coast from Louisiana and Texas, where the oil is stored, since there is no pipeline over the Rocky Mountains. The refineries more likely will have to bid to divert oil being shipped to Asia, they said.

“Practically speaking, it’s going to be far easier to get supply from the Far East, for Japan and Korea to redirect some cargoes,” said Olivier Jakob, managing director of Petromatrix GmbH. “The only solution is the market. The Strategic Petroleum Reserve is going to be no use.”

Tesoro Corp., the second-largest refiner in the West, said it has a secure supply of crude, enough for the next 30 to 45 days, for its Golden Eagle refinery in Martinez, Calif., and its Anacortes refinery in Washington, both of which use crude from Prudhoe Bay.

Refineries in California and the Pacific Northwest process about half of the 5.12 million barrels of crude produced in the U.S. each day. U.S. refineries in general have ample inventories of crude for this time of year.

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