The Alaskan oil spill sent shock waves through energy markets Monday, with crude oil prices surging to their highest level in 19 months.
But the increases--which stirred up an already ebullient oil market--may be short-lived if the Alaskan port of Valdez reopens this week and Alaskan oil resumes its flow to the United States, analysts said.
“Today, especially in the futures market, you had a knee-jerk reaction,” said Dennis K. Winters, an economist with Data Resources Inc. in Lexington, Mass. Winters said the longevity of the price rise will depend on “how quickly they can restore delivery” of the Alaskan oil.
An often-used barometer of energy prices--West Texas Intermediate--shot up 38 cents to $20.53 a barrel on the New York Mercantile Exchange futures market Monday, the highest closing price since August, 1987. Earlier in the day it peaked at $20.95.
In addition, the most widely traded international crude--North Sea Brent Blend--rose above $19 a barrel for the first time since October, 1987. Also, unleaded gasoline for April delivery closed up 1.73 cents at 59.75 cents a gallon on the New York Mercantile Exchange.
Nonetheless, an official at Chevron Corp. said the disruption was in effect small change, barring unexpected delays.
“If you lose all the money you’ve got in your pocket right now you’ll be unhappy--but it’s not a big amount compared to your annual income, and that’s the situation here,” said Thomas G. Burns, manager of Chevron’s economics staff.
The price surge was triggered by an accident late last week, when an Exxon Corp. tanker spilled an estimated 10.1 million gallons of crude oil into Prince William Sound in Alaska.
The spill forced the closing of Valdez, where freighters pick up oil from the Alaska Pipeline and haul it to the rest of the United States, principally the West and Gulf coasts. Despite expectations that the oil spigot would soon be turned back on, analysts were following developments in Valdez closely.
The Alaskan Pipeline provides one quarter of domestic U.S. oil production, or 1.8 million barrels of oil per day. Of this amount, 1.2 million barrels go to the West Coast and the remainder is consumed by states along the Gulf of Mexico, according to DRI.
Moreover, Alaskan petroleum accounts for 40% of oil consumed in California, said Dennis J. Eoff, senior energy specialist with the California Energy Commission in Sacramento.
A sustained interruption would have serious ripple effects, pushing up prices in other oil markets, and likely forcing California to use more distant oil sources, such as Singapore, to supply its motorists. Such a move could cost four to six cents per gallon in added transportation costs, Eoff said.
Thus, said Chevron’s Burns, “if Alaska is going to be shut down for an extended period of time, it’s a different ballgame entirely.”
Even if Alaska reopens soon, however, it remains that energy prices have risen dramatically in recent months.
The pressures on energy prices have included brisk demand by robust economies in the United States and Asia, production cuts by the Organization of Petroleum Exporting Countries and production accidents.
For instance, difficulties in the North Sea, including a platform explosion last year, have kept hundreds of thousands of gallons a day off the world oil market. Global demand for oil is estimated at 65 million barrels a day.
These factors have combined to push up crude oil prices more than 50% since last November, not even counting the Alaska problems.
“For the last several months it just seems like we’ve been having a run of bad luck with supplies and that’s been part of what’s pushing prices up,” said Morris Greenberg, an oil price forecaster with the WEFA Group, economic consultants in Bala-Cynwyd, Pa.
Analysts on Monday were predicting that luck for energy consumers might change for the better before the year is over.
“I know a lot of people are saying that prices are going to move higher, but frankly it’s a little hard to see how they can keep going farther up,” Greenberg said.
In the case of new, unforeseen problems, at least one expert suggested that OPEC, eager to regain its market share, might play a constructive role.
“My guess is they (OPEC) would tend to increase production rather than stand by and watch the price skyrocket,” Burns said.
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