This is a humdinger: BP’s Prudhoe Bay pipeline is possibly corroded and leaking, and will be shut down.
Once the field is shut down, BP said oil production will be reduced by 400,000 barrels a day. That’s close to 8 percent of U.S. oil production or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.
As of mid-afternoon Monday, oil prices have risen to over $77. The US Department of Energy is considering a release from the Strategic Petroleum Reserve to help cushion the effect of the supply reduction on oil prices.
Note that this event is unlikely to affect gasoline prices much in the US apart from the effect on oil prices, because much of the production from Prudhoe Bay has been going to Asia.
Still, this is a humdinger. Bad timing too.
UPDATE: Not surprisingly, EconBrowser and Environmental Economics have relevant and informative posts, both providing elasticity calculations of the price elasticity of demand for oil. I think Tim’s EE post overstates the % change in quantity, because the article he cites says that it’s a 2.6% reduction in US supply, not world supply. Thus he overstates the numerator in the elasticity calculation, which leads to the implausible 1.3 that makes him stop and wonder. Jim’s estimate at EB is 0.17, much more plausible.