Energy Secretary Confident On Oil

(CBS/AP)  Crude oil prices slipped Tuesday after Energy Secretary Samuel Bodman said extra supplies can replace oil lost from the shutdown of a major Alaskan pipeline owned by BP PLC.

The Energy Information Administration, the government's energy statistics arm, said in its short-term energy outlook earlier in the day that, based on BP's statement Monday that recovery would take several months, it expects Alaskan crude oil production to gradually return to full production before February. That would result in the loss of about 50 million barrels of oil over the next six months.

The shutdown means up to 400,000 barrels of crude a day – fully 8 percent of U.S. domestic production – has suddenly dried up, reports CBS News correspondent Sharyl Attkisson.

"In terms of the West Coast, this is an even bigger event than Katrina was for the people on the Gulf Coast. The West Coast gets 25 percent of its domestic production from this, from this field," Tom Wallin, an energy analyst, tells CBS News.

But later on Tuesday, Bodman said there are adequate supplies to make up for the loss to West Coast refineries. Relatively high inventories of crude oil in the system and oil that can be diverted from other producers, including Saudi Arabia and Mexico, can help meet refinery needs, he said.

"My sense is we're in pretty reasonable shape," Bodman told a news conference.

Light sweet crude for September delivery fell 67 cents to settle at $76.31 a barrel in Tuesday on the New York Mercantile Exchange, after rising as high as $77.45 before Bodman's speech.

Brent crude on London's ICE futures exchange fell 75 cents to settle at $77.55 a barrel on Tuesday.

Even before BP began shutting down the pipeline, gas prices hovered near record highs, averaging more than $3 a gallon, reports CBS News correspondent Bob Orr. The average U.S. retail price of a gallon of unleaded, regular gasoline was $3.036 on Monday near its all-time high of $3.057, reached Sept. 5 after Hurricane Katrina hit the Gulf Coast.

BP Exploration Alaska announced late Sunday it had begun shutting down 400,000 barrels of daily oil production at Prudhoe Bay in Alaska. The price jumped more than $2 Monday to settle at $76.98 a barrel, the highest since July 14, when the settlement was a record $77.03.

While BP is still in the process of shutting down its Prudhoe Bay oil field, it has been floating the idea of running part of the field as a "parallel track" to keep more oil flowing, analysts said.

The work needed to accomplish that, though, may not be feasible going into the colder months, said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York.

Alaska usually supplies 800,000 barrels of oil a day to the West Coast refineries, or 30 percent of all the oil processed daily in that region, the EIA said in its outlook.

Bentz noted that the oil field's Atlantic North Slope Crude is a sour (or high sulfur) crude, used more for distillates such as heating oil than for gasoline. In the winter, if inventories start to dwindle, the Alaskan shutdown could cause heating oil prices to jump, Bentz said.

The average price of U.S. retail gasoline was $3.036 on Tuesday, according to AAA — near its all-time high of $3.057 reached Sept. 5 after Hurricane Katrina struck the Gulf Coast.

Crude oil inventories on the West Coast as of last week were at 55.5 million barrels, well above last year's levels. Gasoline and heating oil inventories were also ample, at 5.7 million and 5.3 million barrels, respectively.

There are "too many variables" to say whether current inventories will be sufficient, though, as the Alaska shortage wears on, said Neil Gamson, an analyst at the EIA.

Still, "we're not anticipating a shortage, although there may be some price effect on the West Coast" as they ship in more crude from other parts of the country and Singapore, Gamson said.

Fortunately, he added, West Coast refineries are some of the most advanced in the world, and capable of processing all types of crude.

Despite profit-taking that has held down prices as traders lock in gains and moves to call a cease-fire between Israel and Hezbollah fighters in Lebanon, analysts said prices have the potential to go much higher.

"I still think $80 is a possibility," said Peter Beutel, at Cameron Hanover in New Canaan, Conn. "I don't know if (the BP shutdown) alone has enough legs to take us there, but it won't take a major news item to take us there," he said, adding that even a worrisome inventory report on Wednesday could be the catalyst.

U.S. gasoline stocks are expected to fall for the third straight week in data due Wednesday form the Energy Information Administration. At around 334 million barrels, U.S. crude inventories are at a five-year high, but the Organization of Petroleum Exporting Countries' spare capacity is tight — about 1.1 million to 1.3 million barrels a day, mostly in Saudi Arabia, the EIA estimated Tuesday.

Bodman said that Saudi Arabian Oil Minister Ali Naimi told him that oil would be made available.

In other Nymex trading Tuesday, gasoline futures fell 2.53 cents to settle at $2.2263 a gallon. Heating oil futures fell 2.71 cents to settle at $2.1164 a gallon, and natural gas rose 25.1 cents to settle at $7.158 per 1,000 cubic feet.

Crude prices rose to a record $78.40 a barrel on July 14 on worries that Iran, OPEC's No. 2 producer, could cut supplies if it gets involved in the fighting in Lebanon and Israel. Iran is also entrenched in a standoff with the United Nations over its nuclear program, and Iranian officials haven't ruled out using oil as a bargaining chip.

In Nigeria — Africa's biggest oil exporter and the fifth-largest supplier of crude to the United States — militant attacks this year have shut down a quarter of the 2.6 million barrels of oil it normally produces each day.

Oil prices are 20 percent higher than a year ago, but still below all-time inflation-adjusted highs of around $90.