Oil prices spike following Alaskan oilfield shutdown

Posted Aug 7th 2006 9:30AM by Michael Fowlkes
Filed under: Bad News, Industry, Exxon Mobil (XOM)

Oil jumped $1.48 this morning to $76.24 following the shut down of the nation's largest oilfield this weekend in Alaska.

BP (BP) was forced to shutdown the Alaskan Prudoe Bay after finding a pipeline leak over the weekend. Prudoe Bay accounts for 8% of U.S. oil production and the closing of the field will result in oil production falling around 400,000 barrels a day.

Officials are not sure how long the field will remain closed, or even how long it is going to take to actually shut down the field. BP will start by shutting down the eastern side of the Bay, and then once that is finished move on to shut down the western side. Best estimates of the initial shut down phase are running between 24-36 hours. In the end the company will be forced to close off around 1,000 wells.

How long it will take for the company to get the leak fixed and reopen the field is anyone's guess. "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.

The timing for this happening could not have been worse. The last month oil has been driving the market as continued violence in the Middle East has kept crude trading at record levels. Some fear that the loss of the Prudoe Bay field could really send a spike in oil prices. "Oil prices could increase by as much as $10 per barrel given the current environment," Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo said. "But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced."

Are we finally going to see oil break through the psychological $80 barrel this week? It would not surprise me in the least.

Let's see where oil stocks are looking to open:
ExxonMobil (XOM): +0.5% to $69.00 up $0.31;
BP (BP): -2.3% to $70.89 down $1.65;
Chevron (CVX): +0.5% to $66.00 up $0.34

Tags: bp, oil, tom williams, TomWilliams, us oil, us oil production, UsOil, UsOilProduction