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Iran attacked and seized control of a Romanian oil rig working in its Persian Gulf waters this morning one week after the Iranian government accused the European drilling company of “hijacking” another rig.

An Iranian naval vessel fired on the rig owned by Romania’s Grup Servicii Petroliere (GSP) in the Salman field and took control of its radio room at about 7:00 a.m. local time, Lulu Tabanesku, Grup’s representative in the United Arab Emirates said in a phone interview from Dubai today.

“The Iranians fired at the rig’s crane with machine guns,” Tabanesku said. “They are in control now and we can’t contact the rig.” The Romanian company has 26 workers on the platform, he said.

Iran, which holds the world’s second-largest oil and gas reserves, is due to respond today to a European Union-led offer of incentives aimed at persuading it to halt uranium enrichment activities that are crucial to its nuclear program.

Neither the press office of Iran’s oil ministry nor the one of Iran’s revolutionary guards could be reached for comment when called. Today is a national holiday in Iran.

Crude oil for September was at $72.56 a barrel, up 11 cents, on the New York Mercantile Exchange at 12:06 p.m. in London. The contract expires today. The more-active October contract was up 7 cents at $73.37 a barrel.

Iran urged the United Arab Emirates last week to help it return another oil rig owned and operated by the Romanian company in the same waters close to the Straits of Hormuz, through which 20 percent of the world’s daily oil supply moves on tankers.

Grup said it recovered its rig last week because of a contractual dispute with its Iranian client, Oriental Oil Kish.

Iranian President Mahmoud Ahmadinejad suspended Oriental Oil’s activities in 2005 on alleged corruption activity and ties to Halliburton Co. of the U.S. The U.A.E.-registered drilling company had signed a preliminary contract with Halliburton after winning an estimated $310 million contract to develop phases 9 and 10 of Iran’s offshore South Pars gas reservoir.

Mircea Geoana, the head of the Social Democratic Party, the main opposition party in Romania, called on the government to “undertake all diplomatic measures necessary” to persuade the Iranians to release the rig.

He also called on President Traian Basescu in a news conference broadcast on Realitatea television to invite all political party heads to the presidential palace to “discuss what Romania’s reaction will be to this provocation.”.

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Kind of makes you wonder what this is all about.  Is Iran making a stand against the US or are they getting over confident now that they are the largest military power in the Middle East?  Iran is a scary country.

Oil fell for a fourth day on Thursday to the lowest in nearly eight weeks after U.S. data reminded traders that crude stocks are relatively robust and the summer driving season is nearing its end.

U.S. light, sweet crude for September delivery fell 61 cents to $71.28 a barrel, its lowest since June 26. London Brent was down 62 cents to $72.21 a barrel.

U.S. crude prices have shed more than 7 percent after falling for six of the last eight sessions as a ceasefire took hold in the Middle East and BP (BP.L: Quote, Profile, Research) decided to shut in only half of its 400,000 barrel-per-day (bpd) Prudhoe Bay oilfield.

Some dealers had feared the partial closure of the biggest oilfield in the United States might trigger a surprisingly large drawdown in this week’s crude inventories, but data on Wednesday showed a decline of 1.6 million barrels, in line with forecasts.

Crude stocks have fallen from the eight-year high reached earlier this year, but still remain higher than almost any time since 1999, giving refiners a sizeable supply buffer to guard against any unexpected disruptions.

Gasoline inventories dropped by a deeper-than-expected 2.3 million barrels, but demand eased from the previous week as the summer driving season, which ends in early September, began to wind down.

“It is this pace of demand deceleration, as well as the plentiful supplies of heating oil, that may set a more modest bearish tone to the market in the weeks after August,” said First Energy Capital analyst Martin King.

“WTI crude oil prices treading water more in the range of the very low $70s to very high $60s may be something that materialises, barring any hurricane-induced price spikes.”

Distillate stocks rose 800,000 barrels and heating oil supplies stand higher than a year ago, the data showed.

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Nice to see oil prices starting to stabilize after many weeks of oil and gas price increases.  I only hope that prices will fall below $70 a barrel.

Oil fell $2 to below $75 a barrel on Thursday after Britain said it had thwarted a plot to blow up aircraft in transatlantic flight (see snippet below for some details on that) and investors recalled the slump in fuel demand that followed 9/11.

Oil consumption would again be hard hit if travelers turn away from flights and consumer confidence takes a knock. Jet fuel prices in particular moved down sharply in the weeks after September 11, 2001 and after the SARS outbreak in 2003.

At 1645 GMT U.S. oil was down $1.95 at $74.40, off a low of $74.20. London Brent crude was down $1.72 at $75.56.

A strike against an already weakened airline industry, caused by the constantly escalating prices of fuel, would not only cripple air travel, re-awaken the fear and concern of the 9-11 attacks, but an attack of this nature and magnitude would also bring into question the worlds ability to protect itself from the terrorist element. Our congratulations to the law enforcement teams that successfully aborted this attack before it was carried out.

For Additional Information

BRITISH police have thwarted what they said was a plot to blow up aircraft flying to the US, causing “mass murder on an unimaginable scale”.

Twenty-one people were arrested and airports across Europe thrown into chaos after Britain’s security status was elevated from severe to critical – “imminent attack expected”. The US raised its status to “red” – the highest level – for flights from Britain.

US officials said the airlines targeted were United, American and Continental. A police source said up to 10 flights might have been targeted, the BBC reported.

The US Homeland Security Secretary, Michael Chertoff, said the plot was in its final stages of planning. It was “international in scope” and “in some respects suggestive of an al-Qaeda plot”.

Additional Information

Oil prices hit a new record on Wednesday, extending gains the previous day that followed news BP was halting production at the biggest oilfield in the United States, possibly for months.

London Brent crude rose 35 cents to a new all-time high of $78.65, traders said, a cent higher than Monday’s mid-session peak of $78.64.

European markets have been pulled higher on expectations the United States will draw in more oil imports to make up for the closure of the Prudhoe Bay field in Alaska that pumps 8 percent of U.S. domestic supply.
U.S. crude futures were three cents lower at $76.95 a barrel by 1553 GMT following a three percent rally on Monday.

BP on Sunday began shutting down its 400,000 barrel per day (bpd) Prudhoe Bay oilfield after discovering a corroded pipeline and said it could be weeks or months before production resumed.

The outage added to traders’ concerns about the adequacy of supply in view of violence in the Middle East and prolonged production outages in Nigeria.

It has underlined the vulnerability of the world’s aging oil infrastructure, much of which dates back around 30 years.

“There’s the Iranian nuclear situation, Israeli action in Lebanon and now we’ve got rusting infrastructure,” said analyst David Dugdale of MFC Global Investment Management.

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With news that gas giant BP is closing down an oil field in Alaska to fix a corroded pipe line and a leak, gas stations and customers were gearing up for another price spike, Monday.

At the BP gas station on 8 Mile in Detroit the price for regular unleaded was $3.09 Monday at noon, but station manager Joe Brown said it will jump to $3.19 by Monday night.

“Because of the pipeline, BP called us and told us gas is going up at least 10 cents. You’re probably going to see prices changes around this evening; first thing in the morning for sure when you get up,” he said.

Early morning reports of rising gas prices had 6th grade science teacher Alean King with just one thought, “Let me get a full tank of gas again before it goes up. It changes my driving habits because I make sure I do all my things in route now instead of venturing off like I usually do.”

Gas prices have risen an average 6 cents statewide since last Monday. AAA said new records have been set in Michigan and Detroit.

Detroit’s average price of $3.08 is a few cents cheaper than other areas of the state like Traverse City, Jackson and Ann Arbor.

Article found here >>

BP began shutting down the nation’s largest oil field yesterday after an inspection detected heavy corrosion and a small leak in a critical pipeline in its Prudhoe Bay operation in Alaska. The emergency drove already-high world crude oil prices to just under $77 a barrel.

The company said that it would take three to five days to shut the pipeline system that serves Prudhoe Bay on the North Slope of Alaska. BP said it could not estimate how long the system would be down as it replaced all 16 miles of feeder pipelines that connect the Prudhoe Bay field with the larger Trans-Alaska Pipeline.

Bob Malone, president of BP America, said at a news conference in Anchorage that the company would look for a way to get at least some of the oil flowing again, quickly and safely, to limit the impact on the nation’s oil supply. He issued a public apology.

The Prudhoe Bay field produces 400,000 barrels a day, or 8 percent of American crude. Another 380,000 barrels a day from the North Slope is not affected by the shutdown.

The shutdown is expected to roil the Alaskan economy for months, if not longer. California and the rest of the West Coast also stand to suffer economic damage since refineries there are designed to process the Alaskan crude.

Coming at a time of rising turbulence in the Middle East and threats by Iran to use oil as a political weapon, the news from Alaska pushed the price of crude oil for September delivery up $2.22, or 3 percent, to $76.98 a barrel. While that is close to a record high, it is still lower than the inflation-adjusted record of about $85 a barrel reached in 1981. The effects of the big jump in oil prices were seen worldwide yesterday, with stock prices declining in Europe and the United States.

Prices at the gas pump began to rise as much as 5 cents a gallon in some cities. Analysts predicted an additional rise of at least another 5 cents in the coming days, particularly on the West Coast.

Daniel Yergin, president of Cambridge Energy Research Associates, said the shutdown would not ordinarily be a major problem by itself. But he added: “This is a disruption on top of several other disruptions that are currently afflicting the world’s oil markets in Nigeria, Iraq, Venezuela and production is still out in the Gulf of Mexico. The numbers are starting to add up.”

The discovery of pipeline corrosion, and the shutdown to do emergency repairs, are the latest in a string of embarrassments for BP, which is based in London but has operations in the United States that are bigger than those of Exxon Mobil.

Its troubles also come as Congress is debating whether to expand oil drilling on the North Slope. The House recently approved drilling for oil and gas in the Arctic National Wildlife Refuge, but the Senate has remained reluctant to act because of environmental concerns. Oil companies may now have a tougher time reassuring lawmakers.

The discovery of corrosion in the pipeline caught BP by surprise, and as of yesterday, the company was still trying to determine the cause. As a result, it is re-evaluating how it conducts inspections along the pipeline.

“We can’t explain it,” Ronnie Chappell, a spokesman for BP said. The company’s regular practice in Prudhoe Bay had been to spot-check sections of pipeline that were prone to corrosion.

“We believed that this program was giving us an accurate view of what was occurring in these pipelines,” Mr. Chappell said. “But the discovery of this unexpectedly severe corrosion in this particular segment of line has caused us to rethink that.”

Mr. Chappell said the pipes where the corrosion was detected had not been inspected with a “smart pig,” a device that travels through the inside to measure pipe wall thickness, since 1992. The reason the device was not used, he said, was that the pipes were too clogged with sludge for the device to pass through easily.

But after a major spill in March along the same network of pipes, the Department of Transportation ordered inspections with the smart pig. Those tests revealed that the steel had corroded in 12 places on the eastern side of Prudhoe Bay to thicknesses less than BP considers safe.

In those areas, tests found losses of 70 to 81 percent in the 3/8-inch thickness of the wall, the company said. In one area, it said, the equivalent of four to five barrels of oil had already leaked out of the pipeline because of the rusting. The company said that spill had been contained, and that workers were in the process of vacuuming it up from the tundra.

Ten miles of the 16 miles of pipeline in the Prudhoe Bay field have yet to be inspected with the smart pig, raising the possibility that more severe corrosion could be detected. Six miles of pipeline at BP’s Lisburne field, near Prudhoe Bay, were not affected by the shutdown and remain operational.

Because the company is uncertain how long it will take to make the repairs, the final cost of the emergency shutdown is difficult to estimate. The company said it had not yet done an analysis to determine the financial impact.

The shutdown further sullied the reputation of BP as it was trying to re-engineer its marketing to project the image of an environmentally sensitive company committed to controlling climate change. BP executives were quick to acknowledge the dimensions of their new problem, which comes in the wake of a deadly refinery explosion last year in Texas and the 270,000-gallon spill on the North Slope in March. That spill, the worst since production began on the North Slope, has resulted in a federal criminal investigation.

“BP deeply regrets that it’s been necessary for us to take this drastic action,” Bob Malone, president of BP America, said at a news conference. “I apologize for the impact this has had on our nation and to the great state of Alaska.”

BP said it was studying the possibility of operating portions of the pipelines to reduce the disruption, but it is unclear whether it can do that.

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The Energy Department is prepared to provide oil from the government’s emergency supplies if a refinery requests it because of the disruption of supplies from Alaska, a department spokesman said Monday.

“We’re taking a very serious look at this,” said spokesman Craig Stevens, referring to the loss of nearly half of oil shipments from Alaska’s North Slope because of a pipeline corrosion problem.

Stevens said the department will be in contact with BP Exploration Alaska Inc. and West Coast refiners later in Monday to assess the situation. “If there is a request for oil we’ll certainly take a serious look at that,” he said.

Sen. Charles Schumer, D-N.Y., often a critic of the administration’s energy policy, said: “This is the appropriate and right thing to do. We’re glad the White House’s reluctance to use the Strategic Petroleum Reserve to prevent price spikes seems to have dissipated.”

The Strategic Petroleum Reserve is the nation’s emergency stockpile of crude oil. It was created after the 1973 oil embargo when Arab countries halted petroleum exports to protest U.S. support for Israel.

The reserve has about 700 million barrels in storage on the Gulf Coast to be used in case of a serious supply disruption. The Energy Department in the past has lent SPR oil to refineries when there were disruptions because of pipeline or other problems.

Most of Alaska’s oil goes to refineries on the West Coast. It was unclear how those refineries would be supplied with oil on the Gulf Coast. However any oil put into the market to replace lost Alaska oil would tend to ease prices, market experts say.

Oil prices jumped by more than $1 a barrel Monday following a production shutdown at an Alaskan oil field that accounts for about 8 percent of U.S. production.

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Oil surged above $77 a barrel in Europe as BP began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world’s oil, ran high.

London Brent crude climbed as much as two percent to $77.73 a barrel, within reach of its all-time high of $78.18, on expectations that the United States would scour world markets for replacement oil. At 1223 GMT it was up 93 cents at $77.10.

U.S. crude was up $1.22 at $75.98, off a $76.67 high. BP Plc said on Sunday it was shutting the Prudhoe Bay oilfield in Alaska for repairs, cutting production by 400,000 barrels per day (bpd) after discovering severe corrosion and a tiny spill from a Prudhoe Bay oil transit line..
A BP spokesman said on Monday it would take several days to shut the field adding “beyond that speculation is pointless”.

“The BP field is a sizeable stream. The world is already concerned about supplies and this is just adding to concerns,” said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.

Oil has rallied 25 percent this year with a quarter of Nigeria’s output shut by militants, saboteurs playing havoc with Iraq’s exports and consumers afraid Iran could halt oil flows to punish opponents of its nuclear program.

War in Lebanon has added to unease.

Citigroup said the loss of the BP field further cut the volume of spare oil available to the 85 million bpd world market. It assumed Prudhoe Bay’s closure could last months

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Consumers will not face shortages of gasoline and other petroleum products because of BP Plc’s shutdown of its giant 400,000-barrel-a-day Prudhoe Bay oil field in Alaska, the government’s top energy forecasting agency said on Monday.
 
“It certainly isn’t going to create any shortages in gasoline, diesel fuel and other petroleum products,” Tancred Lidderdale, an analyst with the federal Energy Information Administration, told Reuters.

Lidderdale said West Coast refiners, where most of Alaska’s crude oil is shipped, have plenty of oil supplies as crude inventories in the region are “above average.”

He also said West Coast refineries were complex and because they are configured to process Alaska’s more dirty, or sour, crude they can easily process other types of crude that may be shipped from the U.S. Gulf Coast or other countries.

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Just another mass panic buy consumers that only drives prices up.  How did oil and gas prices become so volitile?

In a sudden blow to the nation’s oil supply, half the production on Alaska’s North Slope was being shut down Sunday after BP Exploration Alaska, Inc. discovered severe corrosion in a Prudhoe Bay oil transit line.

BP officials said they didn’t know how long the Prudhoe Bay field would be off line. “I don’t even know how long it’s going to take to shut it down,” said Tom Williams, BP’s senior tax and royalty counsel.

Once the field is shut down, in a process expected to take days, BP said oil production will be reduced by 400,000 barrels a day. That’s close to 8 percent of U.S. oil production as of May 2006 or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.

The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming both from the hurricane season and instability in the Middle East.

“We regret that it is necessary to take this action and we apologize to the nation and the State of Alaska for the adverse impacts it will cause,” BP America Chairman and President Bob Malone said in a statement.

A 400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

“Oil prices could increase by as much as $10 per barrel given the current environment,” Emori said. “But we can’t really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced.”

Malone said the field will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

Officials at BP, a unit of the London-based company BP PLC (BP), learned Friday that data from an internal sensing device found 16 anomalies in 12 locations in an oil transit line on the eastern side of the field. Follow-up inspections found “corrosion-related wall thinning appeared to exceed BP criteria for continued operation,” the company said in a release.

Workers also found a small spill, estimated to be about 4 to 5 barrels. A barrel contains 42 gallons of crude oil. The spill has been contained and clean up efforts are under way, BP said. “Our production while all this is in place is going to be marginal,” said Will Vandergriff, spokesman for Gov. Frank Murkowski. “That presents some technical problems because it’s a high capacity line and it’s meant to be filled.”

Vandergriff said he did not know exactly what potential problems a sudden drop in oil flow might cause the pipeline. Alyeska Pipeline Co. officials could not immediately be reached for comment.

A prolonged shutdown would be a major blow to domestic oil production, but even a short one could be crippling to Alaska’s economy.

According to forecast figures from the Alaska Department of Revenue, a 400,000 barrels of oil per day production drop would mean approximately $4.6 million per day lost to the state. That is money going to both the state treasury and the state’s oil wealth savings account, the Alaska Permanent Fund.

“That starts adding up to big bucks in a hurry,” said House Finance Co-Chairman Mike Chenault, R-Nikiski. “It could start having a disastrous effect on the state as early as today.”

BP said it was sending additional resources from across the state and North America to hasten the inspection of the remaining transit lines. About 40 percent of the lines have been inspected.

BP previously said it would replace a 3-mile segment of pipeline following inspections conducted after up to 267,000 gallons of oil spilled onto the frozen ground about 250 miles above the Arctic Circle in March.

House Speaker John Harris said it was admirable that BP took immediate action, although it’s sure to hurt state coffers.

“This state cannot afford to have another Exxon Valdez,” said Harris, R-Valdez.

The Exxon Valdez tanker emptied 11 million gallons of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1,200 miles of rocky beach in nation’s largest oil spill.

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