LONDON – U.S. crude surged 3 percent to $77 a barrel on Monday after pipeline damage forced BP to shut down an Alaskan oil field that pumps 8 percent of U.S. domestic output.
U.S. crude rose $2.22 to $76.98 a barrel, after hitting $77.30 earlier in the day and within striking distance of the record $78.40 hit in July. London Brent rose $2.13 to $78.30, after hitting a record $78.64.
BP Plc (BP) said Sunday it was shutting its 400,000 barrel per day Prudhoe Bayoil field for repairs, after discovering severe corrosion on a pipeline. Officials said it may take weeks or months to replace two pipelines and resume production on the largest U.S. oil field.
"The BP field is a sizable stream. The world is already concerned about supplies and this is just adding to concerns," said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.
Oil has rallied 25 percent this year with a quarter of Nigeria's output shut by militants, saboteurs playing havoc with Iraq's exports and consumers afraid Iran could halt oil flows to punish opponents of its nuclear program.
War in Lebanon has added to unease.
Citigroup said the loss of the BP field further cut the volume of spare oil available to the world market.
"We estimate that 'effective' spare capacity ... was 2 million bpd, it now falls to closer to 1.6 million bpd," the bank said.
The U.S. Energy Department said it would consider loaning oil from its emergency reserves to refiners as it did last year when hurricanes shut a quarter of U.S. crude and fuel output.
OPEC said it was concerned at the closure and declared it would work to ensure there was no supply shortage.
"The Organization will study the situation and react as appropriate," OPEC said in a statement emailed to Reuters.
The International Energy Agencyruled out using its reserves, Executive Director Claude Mandil said in an interview. The United States is the world's biggest oil consumer by far, accounting for a quarter of global demand.
"This latest setback to global oil production comes in the context of a relatively tight oil market," BNP Paribas said.
"In this environment, we maintain our forecast for Brent crude of $77 a barrel this quarter, and so implicitly expect prices to move above $80 a barrel at some point this quarter."
MIDDLE EAST BOILS
Tensions in the Middle East rose after Iran again invoked its oil exports for political leverage and Lebanon rejected a draft U.N. resolution meant to end the war between Israel and Hizbollah, delaying its vote.
A further spike in oil prices resulting from a broader Middle East, supplier of a third of the world's crude, would drag an already slowing U.S. economy into recession more easily now than a year ago, Standard & Poor's said on Monday.
Iran, the fourth-largest oil exporter, vowed on Sunday to expand its atomic fuel work and warned of a harsh response if the United Nations imposed sanctions on Tehran.
"If they do (impose sanctions), we will react in a way that would be painful for them," said Tehran's chief nuclear negotiator Ali Larijani. "We do not want to use the oil weapon, it is they who would impose it upon us."