Alaska Pipeline Service, which operates the Trans Alaska Pipeline, on Saturday told BP (BP) and other producers to reduce their output by 95%. An extended shutdown could drive oil prices to $100 per barrel.
This is a nasty situation coming in the middle of winter. The Wall Street Journal quoted BP spokeman Steve Rinehart who said that this is a "significant event." He further added: that the latest shutdown means "a big reduction" in the middle of winter "when we have temperature and weather challenges."
We're looking at a 600,000 barrels per day shortfall. Ed Morse of Credit Suisse said: "You can't replace 600,000 barrels per day overnight, especially when there's no other production close by."
The pipeline supplies oil mainly to the West Coast. There is some oil held in storage at the Valdez terminal and refineries could buy more from the Middle East, Russia and Latin America.
The outcome of this mess depends on how quickly the oil flow in the pipeline can be restored. For now, it's a wait and see attitude.