Monday, August 07, 2006

Alaskan Oil Field to Shut Down

Expect gas prices to go even higher in the near future. "Severe corrosion" has been found in a major Alaskan oil transit line; this corrosion would cause oil to leak and damage the environment. BP, owners of the pipeline, will have to shut it down for repairs until government regulations are met. This means a reduction in 400,000 barrels of oil per day while the line is being repaired; this is 8% of US oil production and 2.6% of total US supplies (including imports). Although these numbers seem small, they might turn out to be big in the eyes of energy traders due to already tight supplies and troubles in the Middle East.

400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

"Oil prices could increase by as much as $10 per barrel given the current environment," Emori 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."


Some analysts believe that the impact of this shut down will actually be minimal and are taking the wait-and-see approach. I wouldn't be surprised, though, if we see those gas prices hit even bigger records. (story here)

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