Oil Leaps by $2.04 on Report of North Sea Pipe Shutdown

Crude prices leaped more than $2 a barrel in frantic trading Thursday after news of a possible monthlong shutdown of a vital North Sea oil pipeline.

The announcement followed a platform explosion Tuesday that disrupted about a quarter of the North Sea’s oil output, which provides valuable Brent light crude to the United States, Europe and elsewhere.

On the New York Mercantile Exchange, the May contract for West Texas Intermediate, the benchmark grade of U.S. crude, soared $2.04 to finish at $24.65 a barrel, the highest level in more than 3 years. The last time the near-month contract was higher was on Jan. 15, 1986.

Since the gas explosion Tuesday, crude prices have surged nearly 15%.

Because gasoline prices have already increased in recent weeks in response to the Alaskan oil spill, the latest jump in crude prices may have only a minimal impact at the consumer level, unless the pipeline shutdown is prolonged.

In New York Merc trading Thursday, the price of unleaded gasoline for May delivery rose 0.03 of a cent to 74.64 cents a gallon, while the May heating oil contract fell 1.04 cents to 52.29 cents a gallon.

“With Brent being a major crude, it has people scared,” said Peter Beutel, energy analyst with Elders Futures Inc. “It’s possible there won’t be any May deliveries.”

Beutel said that buyers anxious to take positions on the May contract before it expired on Thursday also drove prices higher.

The frenzied buying was triggered by a comment from British Energy Minister Cecil Parkinson that the oil-field shutdown could last up to a month. Officials of Shell Exploration & Production, which operates the damaged Cormorant Alpha platform and the pipeline, were inspecting the damage and had not issued a statement.

The closure affects several major oil companies that pump oil through the station. Those include Exxon Corp., with about 85,000 barrels a day shut in; Amoco Corp., with 10,000, and Conoco Inc. with 24,000.

Analysts said factors that normally would have driven prices down during this period--overproduction by OPEC and a softening in demand during the second quarter--had been pushed to the background.

But once North Sea operations return to normal and as the Alaskan spill fades from people’s minds, prices could fall back below $20 a barrel, they said.

‘Overextended’

“The market is so overbought due to the psychological impact of these events that there’s a lot of room for a fall in prices,” said Ken Miller, an analyst with the petroleum consulting firm of Purvin & Gertz Inc.

“The market is overextended and over-bought at this point. The fundamentals don’t support the prices.”

Crude prices also have gotten support from a strengthening gasoline market where the perception is that supplies will be tight this summer. The light North Sea Brent is particularly valuable because it is more easily refined into gasoline than heavier oil.

Despite the recent accidents, some market observers say the idea of a shortage of oil or gasoline is more expectation than reality.

“The strength in prices has resulted from a fortuitous coincidence of a lot of factors,” said William Veno, director of oil market analysis for Data Resources Inc.