Hold On To Your Wallet

A major oil pipeline in Alaska is being shut down for repairs, and this could send market prices jumping:

Oil company BP scrambled Monday to assess suspected pipeline corrosion that will shut shipments from the nation's biggest oilfield, removing about 8 percent of daily U.S. crude production and driving oil prices sharply higher.

BP, which is already facing a criminal investigation over a large spill in March at the same Prudhoe Bay oilfield, said it did not know how long the field would be offline. "I don't even know how long it's going to take to shut it down," said Tom Williams, BP's senior tax and royalty counsel.

While BP suspects corrosion in both damaged lines, it can't say for sure until further tests are complete. Workers also found a small spill of about 4 to 5 barrels, which has been contained and is being cleaned up, BP said.

The news sent the price of light, sweet crude oil up $1.53 to $74.57 a barrel in electronic trading Monday on the New York Mercantile Exchange.

Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of the Prudhoe Bay oilfield would be shut down first, an operation anticipated to take 24 to 36 hours. The company will then move to shut down the west side, a move that could close more than 1,000 Prudhoe Bay wells.

Once the field is shut down, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.

The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming both from the hurricane season and instability in the Middle East.

Prices could jump as much as $10 per barrel, making $4 a gallon gasoline much more likely in the near term.

What should be interesting is the reaction from the politicians. I hope there's a Republican willing to jump in there and make the case about the need for drilling in the Artic National Wildlife Reserve (ANWR). When 8% of our production can be stopped by shutting down only two pipelines, we need more sources of supply.

On the other side I expect the Dems to use the pipeline corrosion and minor spill as the reason why we cannot drill in ANWR because we'll "ruin the environment". This is an issue that could well redound to the benefit of the GOP - if they'll only use it.