Monday, April 4, 2011

Next Problem for Oil: Nigerian Elections .


NEW YORK—Elections in Nigeria this month are sneaking up on the oil market.

The civil war raging in Libya and unrest across the Middle East pushed oil to triple digits in recent weeks. But the threat of disruptions to Nigeria's 2.2 million barrels a day of crude output has barely factored into prices, despite a history of attacks on the West African nation's oil infrastructure during election season.

"It's not on the market's radar," said Barclays Capital oil analyst Amrita Sen.

Nigerians will vote for their president, representatives to their national assembly and governors of the country's 36 states over the next four weeks, but there have already been problems. On Saturday, Nigeria postponed parliamentary elections due to failed logistics, and on Sunday pushed back all votes one week.

Police, military and other security agencies are being deployed nationwide after political rallies turned violent over the past month. And rebel groups have already acted.

More than 10% of U.S. oil imports come from Nigeria, according to Department of Energy, so any supply drops would be taxing for U.S. energy consumers data. In January, the U.S. imported 968,000 barrels a day from the country, making Nigeria the fourth-largest oil supplier after Canada, Saudi Arabia and Mexico.

Prices rose to 2½-year highs just below $108 a barrel Friday, following a 17% rise in oil prices in the first quarter amid worries about unrest in the Middle East.

In Nigeria, a blast on March 16 rocked an oil facility run by the subsidiary of Italian energy major Eni SpA. The Movement for the Emancipation of the Niger Delta, a militant umbrella group, claimed responsibility and pledged further action.

The attack is a reminder of the supply disruptions that came with Nigeria's 2007 elections. Attacks on the country's oil infrastructure stopped the flow of as much as one million barrels a day of oil, forcing customers to scramble for supplies and leaving oil consumers wary of buying Nigerian crude for fear of future disruptions.

Nigeria postponed parliamentary elections Saturday, angering voters, including these in Ibadan, and adding to worries about peaceful polling.
.A supply drop of that magnitude could add as much as$8 a barrel to current prices, said Andy Lipow, president of oil-trading adviser Lipow Oil Associates.

It is troubling for the U.S. market ahead of summer-driving season. Domestic refineries rely on Nigeria's coveted, low-viscosity crude to boost their output of gasoline. Roughly 40% of Nigeria's exports flow to the U.S.

But so far, the market has kept its gaze centered on Libya. Fighting between rebels and forces loyal to Moammar Gadhafi over the past month has curtailed the country's 1.6 million barrels a day of oil production, with Saudi Arabia and others pledging to make up for the lost supplies.

"Every day, what goes on in Libya is taking precedence over what's happening anywhere else, even Nigerian elections that are only two weeks away," said Phyllis Nystrom, an energy-markets analyst with Country Hedging.

Before unrest spread across the Middle East, Saudi Arabia and other members of the Organization of Petroleum Exporting Countries had as much as 3.6 million barrels a day of spare production capacity, according to Société Générale, enough to keep oil traders relatively sanguine about geopolitical risks.

But with that cushion dwindling due to Libya's civil war, any supply disruptions in Nigeria would quickly lead to shortages, sending oil prices sharply higher. Nigeria is the third-largest exporter in OPEC and the largest producer in Africa, according to the Energy Information Administration.

"It's enough to put a significant dent in remaining spare capacity," said Mike Wittner, head of commodity research at Société Générale.

As the official candidate for Nigeria's ruling People's Democratic Party—the country's most influential—incumbent President Goodluck Jonathan easily won early primaries and is expected to win general elections. But he will need support from the oil-rich Niger Delta region in elections seen as the most bitterly contested since Nigeria emerged from military rule 12 years ago.

"We lost one million barrels per day [following the last election cycle], which would be a huge amount if that happened now," said Barclays' Ms. Sen.

She isn't optimistic about the situation. In the run-up to election season, "there are often promises made in the oil region that are not able to be kept," Ms. Sen said.

Will Connors contributed to this article.

Write to Jerry DiColo at

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