Due to infrastructure problems, crude oil production at the BP PLC-operated (BP) Prudhoe Bay field in Alaska has been shut down.
BP said late Sunday it had begun the shutdown of Prudhoe Bay, the largest producing oil field in the U.S. accounting for 8% of domestic output, after discovering severe corrosion along a transit line.
The unprecedented move in Alaska’s North Slope hydrocarbons province sparked a rally in energy prices and elicited a response from the Organization of Petroleum Exporting Countries, which said it would be able to cover the shortfall of 400,000 barrels a day.
Although it’s operator of the Prudhoe Bay license area, BP only owns 26.4% of the project. Other shareholders include Exxon Mobil Corp. (XOM) with 36.4% and ConocoPhillips (COP) with 36.1%.
This field usually ships 800,000 to 850,000 barrels a day, and the repairs could take six months to a year to complete.
“The cut in oil production is driving oil prices sharply higher, which could mean a major blow to consumers.”
How has it affected oil prices so far?
San Ramon-based Chevron Corp. (CVX) shares rose $1.15, or 1.8 percent, to $66.81 in afternoon trading, due in part to an announcement from BP Plc. (BP) late Sunday that it would shut down the Prudhoe Bay oil field in Alaska, which represents 8 percent of daily U.S. crude production, due to possible pipeline corrosion. As a result, crude oil futures surged $2.24 to $77 a barrel and had some analysts warning that it could provide the final push for crude prices to top $80.
With Labor Day a few weeks away prices were bound to rise anyhow, just like they seem to do with every holiday season. Now we have this scenario to add into the mix. And don’t forget, we still have many months to go until hurricane season closes. How long before we see $4.00/gallon or higher? (And, how many of us can afford it?)