So far this year, the energy markets have been rattled by violence in the Middle East, kidnappings in Nigeria, and the threat of sanctions against Iran for its nuclear ambitions. Now, add oil spills in Alaska to the list.
In what has become a familiar scene, oil traders bid up the price of crude oil Monday morning after news that BP had begun the process of shutting down the giant Prudhoe Bay oil field because of leaks, and possible corrosion, on a pipeline that transports the crude oil.
The pop in the price of crude comes just as the Federal Reserve is meeting to discuss interest-rate moves. Although many economists don't expect the Fed to increase rates when it meets Tuesday, rising energy prices have been slowly boosting prices of many consumer items. This rise in the inflation rate remains a major worry for the Fed.
"This is not a welcome development for the Fed's Open Market Committee," says Anthony Chan, chief economist at JPMorgan Private Client Services in New York. "The higher the energy prices go, the greater likelihood more will be passed through to the core inflation rate."
The leak in the pipeline that feeds the Trans-Alaska Pipeline also comes as tensions in the Middle East are escalating. A US and French cease-fire proposal has met with resistance in Lebanon, and Monday the fighting continued. Arab foreign ministers, including Saudi Arabia's Saud al-Faisal, said Monday they plan to support Lebanon.
"They are certainly taking a harder line. They are not blaming Hizbullah, like they were [earlier]," says Mike Fitzpatrick, vice president for energy risk management at FIMAT USA, a commodities brokerage firm. These political pressures are pushing up the price, "but it's hard to quantify."
The amount of Alaskan oil involved in BP's shutdown is relatively modest – some 400,000 barrels of oil per day, or under 5 percent of US domestic production and less than 2 percent of US daily consumption. This is less than the production knocked out in the Gulf of Mexico by hurricane Katrina last August.
Monday morning, the price of crude oil jumped as much as $1.89 a barrel, reflecting how jittery the oil markets have become. As of noon, prices stood at $76.65 a barrel in New York.
If the price of crude oil were to stay at that level, motorists would probably see a familiar sight: gasoline stations raising prices yet again.
"In the weeks to come, we may look with envy at $3-a-gallon gasoline," says Mr. Fitzpatrick. "But it's hard to pin a number on it."
In fact, normally, this is the time of year when gasoline prices would begin to decline as the markets anticipate Labor Day, usually considered the end of the summer driving season. "We normally see a drop in demand," says Phil Flynn of Alaron Trading in Chicago. "But if prices stay at these levels, we might see gasoline prices go up another 3 to 5 cents a gallon."
The bulk of the Alaskan crude gets shipped to West Coast refineries, which make it into gasoline. West Coast refiners normally import 2.2 million barrels of oil per day from other places in the globe. According to the Energy Information Administration, crude oil inventories in the West were 55 million barrels, or slightly above normal.
According to a BP press release, the latest spill involves about 168 to 210 gallons of crude oil. This past March, BP discovered a 201,000-gallon spill from another pipeline.
The US Department of Transportation then directed the company to begin an inspection of all its pipelines. It was in the course of this inspection that the latest leak was discovered.
A company spokesman, Daren Beaudo, says it's "too hard to predict" when the company will start to pump oil again.