Aug. 7 (Bloomberg) -- Crude oil surged more than $2 a barrel in New York and reached a record in London after BP Plc said it will shut Alaska's Prudhoe Bay field, the largest in the U.S., at a time of peak gasoline consumption.

Refiners on the West Coast may have to scramble to find alternate supplies as they make gasoline for a region with some of the highest fuel prices in the nation. U.S. gasoline use peaks between late May and early September. Oil has jumped 26 percent this year as a dispute about Iran's nuclear program has raised concern that the country may cut oil exports.

``The market is already tight and the news from Alaska is the last thing we needed to hear,'' said Michael Fitzpatrick, vice president of energy risk management at Fimat USA in New York. ``This comes after a series of threats to supply. A heat wave or storm could push prices above $80 in a heartbeat.''

Crude oil for September delivery rose $2.22, or 3 percent, to close at $76.98 a barrel on the New York Mercantile Exchange, the second-highest since trading began in 1984. The contract climbed as high as $77.30 a barrel, the highest intraday price since July 17. Futures are up 24 percent from a year ago.

Concern that fighting between Israel and Hezbollah might spread in the Middle East, source of almost a third of world supply, pushed prices to a record $78.40 a barrel in New York on July 14. Lebanese Prime Minister Fouad Siniora said today that U.S. and French peace efforts probably won't bring about a cease- fire.

Brent crude oil for September settlement rose $2.13, or 2.8 percent, to close at a record $78.30 a barrel on the London-based ICE Futures exchange. Futures touched $78.64 a barrel, the highest intraday price since the Brent started trading in 1988.

`Some Months'

It may take ``some months'' for BP to replace at least 3 miles of pipelines in Alaska, Citigroup Inc. analysts including James Neale in London, said today in a research note.

The shutdown began when the company conducted inspections and found corrosion, BP Alaska President Steve Marshall said in a conference call. About 400,000 barrels a day of production is being shut, BP said. The company said it doesn't know when the pipeline will be repaired.

``We found 16 anomalies in 12 different locations, each of those indicating wall thickness loss in excess of 70 percent,'' Marshall said. ``On receipt of this information we initiated detailed inspections of each of these locations, which occurred starting over the weekend.''

A pipeline that leaked four to five barrels of oil was shut down at 6:30 a.m. Alaskan time on Sunday, BP said.

The company operates 22 miles (35 kilometers) of oil transit lines at Prudhoe Bay and said it has inspected about 40 percent of the system.

Alaskan Production

Alaska produced 864,000 barrels of oil a day last year, according to the Energy Department. The Alaskan fields were developed in the 1970s after the Arab oil embargo. Production peaked at 2 million barrels a day in 1988.

The U.S. produced about 5.12 million barrels a day last year and consumes 20.7 million barrels of oil a day.

``It may end up in gasoline price increases,'' said Simon Wardell, an energy analyst at Global Insight Inc. in London. ``It will be interesting to see where they get the oil as it seems they don't have internal producing capacity. They will find replacement cargoes, but there may be a gap before they find the crude.''

West Coast refineries may be forced to buy from Japanese and Korean companies, said Olivier Jakob, managing director of Oberwil, Switzerland-based Petromatrix GMBH.

``Practically-speaking it's going to be far easier to get supply from the Far East; for Japan and Korea to redirect some cargoes,'' Jakob said. ``The only solution is the market, the Strategic Petroleum Reserve is going to be no use.''

Strategic Petroleum Reserve

The Strategic Petroleum Reserve holds about 688 million barrels of oil in salt caverns along the Gulf Coast. It was last tapped in June after a shipping channel in Louisiana was closed.

``I'm obviously concerned about'' the BP pipeline shutdown, Bodman told reporters after attending the opening of an ethanol fuel pump at a filling station in Baltimore. ``We have not had any requests for additional supply, but it would be made available and we can get it to the West Coast.''

Tesoro Corp., the second-largest oil refiner in the U.S. West, said its current operations aren't being affected by the BP shutdown because only 10 percent of its crude supply comes from the field. BP said its refineries in Carson, California, and Blaine, Washington, were running normally and haven't yet been affected by the shutdown.

`A Big Problem'

``This could be a big problem for the West Coast because the region isn't integrated with the rest of the U.S.,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``There isn't a pipeline over the Rockies, so any extra barrels will have to be shipped through the Panama canal or from Asia, which will be expensive.''

Gasoline for September delivery rose 2.3 cents, or 1 percent, to $2.2545 a gallon in New York. Prices are up 23 percent from a year ago.

Pump prices have followed futures higher. Regular gasoline, averaged nationwide, is 30 percent higher than a year earlier, according to AAA, the nation's largest motorist organization. Gasoline rose 0.3 cent yesterday to an average $3.036 a gallon. Prices reached a record $3.057 in early September after Hurricane Katrina shut refineries and platforms along the Gulf of Mexico.

The average price of a gallon of gasoline in California is $3.201 a gallon, AAA said. Hawaii, Connecticut and Washington D.C. have higher gasoline prices.

``The only saving grace is that we are near the end of the driving season,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. ``The lost production accounts for only 2 percent of U.S. daily consumption. This is nothing compared to the disruption we would see if there is conflict with Iran.''

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: August 7, 2006 15:31 EDT