BP pipeline shutdown forces up prices

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The Independent Online

Oil prices jumped overnight after the UK energy giant BP was forced to begin a production shutdown at a major field in the US state of Alaska.

The closure process, which is expected to take several days to complete, is likely to reduce oil production by 400,000 barrels a day - equivalent to 8 per cent of oil production in the US.

News of the shutdown, which BP said was due to pipeline corrosion, lifted the price of crude oil for September delivery by around one US dollar to 75.75 US dollars in Asian trading. The market has also been affected by the continuing violence in the Middle East.

Victor Shum, an analyst with Purvin & Gertz in Singapore, said: "The Middle East violence is a threat to the oil supply, but Alaska is a real disruption."

Crude inventories in the US are at a five-year high, meaning the shutdown at the Prudhoe Bay field will not have an immediate impact on supplies.

"But the market is in very high anxiety, so a real disruption affects the prices, even if there is no threat of a supply shortage," Mr Shum added.

BP Exploration Alaska began shutting down production yesterday due to severe pipeline corrosion and a small spill, estimated at about four to five barrels.

The company said it did not know how long the field would be closed for, although it added it was sending additional resources from North America to hasten the inspection of remaining transit lines. About 40 per cent have been inspected so far.

BP's Alaskan operation is already facing a criminal investigation into an oil spill in which 270,000 gallons of crude leaked into Prudhoe Bay.

BP America chairman and president Bob Malone said the field would not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

He added: "We regret that it is necessary to take this action and we apologise to the nation and the State of Alaska for the adverse impacts it will cause."

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