LONDON (AP) - Oil prices jumped by more than $1 a barrel Monday following a production shutdown at an Alaskan oil field that accounts for almost 8 percent of U.S. production.
The news of the Alaska shutdown caught traders by surprise, said Kevin Norrish of Barclays Capital, who added that the current ability to compensate for lost production was "severely limited."
The U.S. Energy Department, however, indicated it is prepared to provide oil from the government's emergency supplies if refiners ask for it because of the disruption of supplies from Alaska.
Spokesman Craig Stevens said Monday the department will be in contact with BP Exploration Alaska Inc. and West Coast refiners to assess the situation. "If there is a request for oil we'll certainly take a serious look at that," he said.
The Strategic Petroleum Reserve, the nation's emergency stockpile of crude oil, has about 700 million barrels in storage on the Gulf Coast to be used in case of a serious supply disruption.
Traders were also watching the violence between Israel and Hezbollah guerrillas in Lebanon, nearing its fifth week. While diplomatic efforts were intensifying a the United Nations, the fighting continued unabated.
Light, sweet crude for September delivery on the New York Mercantile Exchange climbed rose $1.30 to $76.06 a barrel in electronic trading by afternoon in Europe. Unleaded gasoline gained more than 3 cents to $2.2650.
At London's ICE Futures exchange, Brent crude for September jumped $1.33 to $77.50 a barrel.
BP Exploration Alaska, a unit of Britain's BP PLC, began shutting down oil production Sunday at Prudhoe Bay due to severe corrosion on a pipeline.
Once the field is shut down, in a process expected to take days, BP said oil production would be reduced by 400,000 barrels a day.
That's close to 8 percent of U.S. oil production as of May 2006, according to data from the U.S. Energy Information Administration.
BP officials said they didn't know how long the Prudhoe Bay field would be off line.
The shutdown prompted investors to sell stocks on inflation fears, one day before the Federal Reserve's next decision on interest rates. BP's U.S. shares fell $1.41, or 1.9 percent, to $71.13 in morning trading on the New York Stock Exchange.
Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, said a 400,000-barrel per day reduction in output would have a major impact on oil prices.
"Oil prices could increase by as much as $10 per barrel given the current environment," Emori said, though he said it was too early to tell what would be the exact effect.
Victor Shum, an energy analyst with Purvin & Gertz in Singapore, noted U.S. crude inventories are at a five-year high.
"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," Shum said.
Bill Ramsay, a senior official at the International Energy Agency, told Dow Jones Newswires that the BP shutdown was troubling but not catastrophic for global oil supplies, because higher oil prices could prompt producers with spare capacity such as Saudi Arabia to release more oil onto the market.