BP battles to keep Alaska flowing as oil price heads for record

BP will be able to produce 200,000 barrels of oil a day from its giant Prudhoe Bay oilfield from this week, despite initial concerns that a pipeline leak could jeopardise the entire operation. A spokesman for the company said investigations had confirmed that the western half of the field was not affected by the pipeline problem discovered last weekend and could therefore be kept in operation.

The announcement from BP will at least temporarily relieve some of the pressure on oil prices - the Alaskan oilfield is a key source of oil for the US, supplying around 8 per cent of the country's needs. It has also become a more significant source in a global context, as conflict in the Middle East has heightened concerns about supplies from that region.

It had initially been feared that BP would have to shut down its entire Prudhoe Bay operation after the discovery of corrosion in its pipe network in the region. The announcement of the closure of the whole field caused a 3 per cent rise in oil prices last Monday, as US regulators warned the company to take action to prevent further spills.

However, last week regulators said it had cleared BP to continue oil production in the western half of the Prudhoe Bay field once the company was satisfied with its own safety checks in the area. At the weekend, Robert Malone, president of BP America, announced that examinations of BP's infrastructure in this area of the network had "increased our confidence in the operational integrity of this pipeline".

A spokesman for BP added that while the open part of the field was currently producing only 150,000 barrels a day, output would quickly rise to 200,000 barrels as maintenance on the collection network was completed. That compares with the 400,000 barrels generated daily by the entire Prudhoe Bay field before the shutdown.

The news from BP that its Alaskan problems are not as serious as first thought should provide a short-term easing of oil prices. The price of a barrel of Brent crude oil was at just under $76 by the close of trading on Friday, about $3 below the all-time high recorded earlier in the week when news of the Prudhoe Bay shutdown first emerged.

But analysts warned that even a return to full-scale production in Alaska would not result in a significant drop in oil prices, with ongoing tension in the Middle East threatening global supplies.

Angus McPhail, global oil and natural resources analyst at Alliance Trust, said: "The geopolitical situation is unlikely to improve and there is a possibility it could worsen because there are so many different flashpoints in the Middle East."

Mr McPhail also warned that the US was heading towards the time of year when weather-related incidents were more likely. "There is a real possibility of a tropical storm hitting mainland United States in the coming months and that means more disruption to oil production and storage facilities, which could add an extra $5 to £7 per barrel on top of its current price."

A poll of City economists, to be published today, is expected to show that the consensus forecast for the price of oil at the end of the year is now above $80 for the first time.

Prices could spike as soon as the end of this month, with 31 August the deadline for Iran, a major oil supplier, to respond to demands from the United Nations for the suspension of its nuclear programme.

Economists also point out that that at least part of the reason for the fall in oil prices at the end of last week was the expectation that airlines would use less fuel than expected as they cancelled flights after the terrorism alert. This would be a very short-term effect, they warned.