Pipeline leaks forced BP to halt some Alaska operations.
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."