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Oil field closure sends prices soaring

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WASHINGTON — Oil prices surged Monday and were near the record as a major Alaska oil field was being shut down, a move that significantly cut U.S. oil production and heightened supply worries.

The average U.S. gasoline price, meanwhile, rose to within pennies of the record high.

The price of a barrel of crude oil trading for future delivery rose $2.19, or 2.9 percent, to $76.95 in midday trading. That was near the record price, not adjusted for inflation, of $77.03 hit July 14. Adjusted for inflation, the record was more than $86 in 1981. Gasoline futures also rose, indicating that the market expects prices at the pump to increase more.

The increase came after energy firm BP began shutting down its Prudhoe Bay oil field, 650 miles north of Anchorage, on Sunday following the discovery of corrosion and a small spill in a transit line. Firm officials said Monday it would have to shut down the field for an unknown time, eventually reducing production by 400,000 barrels per day. That accounts for approximately 8 percent of total U.S. production.

BP said it found several areas in its operations in the bay where the pipeline was at least 70 percent corroded. In one location, a small leak was detected. BP America President Bob Malone said the firm will replace all the main pipeline in the area, or approximately 16 miles of pipes.

"On behalf of the BP group, I apologize for the impact this has had," Malone told reporters.

Thomas Bentz, senior energy analyst at BNP Paribas Commodity Futures, says the shutdown comes as several issues in oil-producing areas, including fighting between Israel and Hezbollah and tensions with Iran about its nuclear program, have raised supply worries.

"It is another blow to the market," Bentz says. "It seems like all we get is bad news these days."

The Energy Department said it was prepared to release oil from the government's emergency supplies if a refinery requests it to make up for supply disruptions from Alaska, a spokesman said.

Spokesman Craig Stevens said the department will be in contact with BP and West Coast refiners later Monday to assess the situation.

California gets about 20 percent of its oil from Alaska, with the remainder coming from in state and foreign sources.

The increase in oil prices does not bode well for the price at the pump, Oil Price Information Service head Tom Kloza says. Oil accounts for approximately half of the retail gasoline price.

Monday, the nationwide average gasoline price for regular was $3.036 a gallon. That was up slightly from the prior day and 2 cents below the record hit 11 months ago following supply disruptions after last year's hurricanes, according to motor club AAA.

Discovered in 1967, Prudhoe Bay has the largest oil reserves in the United States, according to the Energy Department. ExxonMobil and ConocoPhillips are partners with BP in the area. BP runs the operation.