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The shutdown of pipelines in the Prudhoe Bay oil field in Alaska is expected to heavily impact oil and gasoline prices. An oil markets analyst discusses the economic consequences.
Oil prices have seesawed in the last two days on the B.P. news. Yesterday, oil jumped more than two dollars a barrel. This morning, it soared even higher after an Energy Department report forecast that the affected field wouldn't resume full production until next February.
But shortly after that, Energy Secretary Bodman and the company made comments about B.P. continuing partial production. That eased prices. And oil prices ended the day slightly lower than yesterday, but still $1.55 higher than the day before.
So where are oil supplies and prices going? For that, we turn to David Pursell, a partner at Pickering Energy Partners in Houston. It's a research firm that advises mutual funds and other large investors in the energy sector.
Mr. Pursell, welcome. Thank you for joining us.
What is your assessment? What is your take on the economic consequences of this disruption on both oil supply and price?
DAVID PURSELL, Pickering Energy Partners:
Based on what we know, our assessment is B.P.'s likely not to have Prudhoe Bay back up and running until at least the end of the year. That's 400,000 barrels a day offline until let's just call it January 2007.
Maybe they can do some partial production during that time, but the assessment right now says we're assuming it's offline until the end of the year. That takes 2 percent of U.S. consumption offline, 8 percent of U.S. supply.
We can go through all the numbers, but at the end of the day the global oil market is fairly balanced. We have global demand growth that non-OPEC supply is having a tough time meeting. That puts more and more pressure on OPEC. I think it's pretty clear OPEC doesn't have a lot of excess production capacity waiting to turn on.
So that when you lose a relatively small amount of oil, like 400,000 barrels a day from Prudhoe Bay, you see the energy market take the oil price up $2 a barrel. Now, this is no different than if you lost half a million barrels a day from Nigeria or Iraq or some of the other areas of the world that we tend to focus on.
So, in other words, oil really is fungible in a world market sense?
Absolutely fungible, and it's a commodity that tends to be pressed on the margins, such that a small supply disruption in a market that's perceived to be very tight is going to take prices higher, and that's exactly what we've seen with disruptions in Nigeria earlier this year. It's exactly what we saw with the Alaska shutdown.
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