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British Petroleum is shutting down the nation's largest oil field in Prudo Bay, Alaska after discovering 16 miles of corroded pipeline.

As oil prices jumped during peak driving season, the U.S. Department of Energy promises to

top into its emergency oil reserves to ease prices at the pump.

Cade of Senior Fellow and Editor of Regulation magazine Peter Van Doren offers an

analysis of the situation in today's podcast.

How much domestic production is lost due to the shutdown of the Prudo Bay pipeline?

The worst case estimates are that 400,000 barrels a day are lost, although as we are finding out today there may be some

alternative feeder network systems that mean that the entire oil field does not shut down,

in which case it won't be 400,000 barrels a day it'll be

something less than that 400,000 barrels a day is about 0.5% of world supply

world output is now about 73.6 million barrels a day. The loss of a half a

percent of world supply should increase prices by something on the order of 10 times that, so 10 times a half a percent is 5 percent.

And 5 percent on top of a current price of $75 a barrel is something on the order of $4 a barrel, which if you've divided by 42 gallons in a barrel.

You've got something between 9 and 10 cents a gallon would be the predicted market

price increase for a permanent loss of this amount of supply over the next few months.

The only thing that mitigates my estimates is that we are currently in a good inventory situation in the United States.

We have about 8% above normal crude inventory, which means that owners of inventory can

decide to continue building inventory, in which case my estimates would be correct,

or they can draw down inventory and hope that another bad shock doesn't happen a few months from now, for example,

...