Oil prices hit a new record yesterday following the shock news that BP had been forced to shut the the biggest field in the US for urgent repairs.
The Prudhoe Bay field in Alaska will stay dry for months while 16 miles of severely corroded pipeline are replaced, BP said on Monday.
Prices fell back in early trading yesterday, but London Brent crude later rose 35 cents to a new all-time high of $78.65, a cent higher than Monday's peak.
By late afternoon it had fallen back to $77.90, 40 cents down on the day, while US crude futures were 43 cents lower at $76.55 a barrel following a three cent gain on Monday.
The Prudhoe Bay shutdown, which follows a massive spillage in March, came on top of market fears that the volatile situation in the Middle East combined with production interruptions in Nigeria could cause massive supply disruptions. Prudhoe Bay normally produces about 2.6 per cent of the US's daily supply of crude, or about 400,000 barrels a day.
BP, the world's second-largest oil company, discovered the extent of the corrosion with tests that were ordered by the federal government after the March spill.
It said it had not cleaned the pipeline for 14 years because it did not believe it was necessary.
Bob Malone, chairman of BP America, said that at worst it could take weeks or months to replace the pipelines.
But the company said it will try to put portions of the network back into operation as they are repaired. BP operates the Prudhoe Bay oil field, located within the Arctic Circle 650 miles north of Anchorage, for itself and for ConocoPhillips and ExxonMobil.
Prudhoe Bay and other oil-fields on Alaska's North Slope feed oil into the 800-mile trans-Alaska pipeline.
The North Slope produces approximately 800,000 barrels a day with Prudhoe Bay accounting for half.
"We estimate it could take between two and three months to get it back on line," Bruce Lanni, an industry analyst with A G Edwards said in a research note. "However, there are no assurances that it will return to current capacity.
"Thus, we would not be surprised to see volume losses in the area of five per cent to ten per cent."
The average US pump price of a gallon of regular unleaded petrol was $3.036, near its all-time high of $3.057.