Wednesday, April 13, 2011

Nigerian elections may spur next oil supply shock. Risk of politically sparked oil attacks hangs over big exporter to U.S

By Myra P. Saefong, MarketWatch


Elections in Nigeria, Africa’s largest oil producer, may be the source of the next oil shock, adding to concerns over global supplies stoked by fighting in Libya and the Middle East.

The country’s first round of government elections Saturday was marred by violence, with a fatal bombing at the election commission’s office in Suleja a day before. A presidential election is scheduled for April 16, and gubernatorial elections have been set for April 26.

Dissatisfaction with the election process could lead to sabotaged oil pipelines and attacks on production, a reprise of Nigeria’s experiences over much of the past decade. A hit to Nigeria’s output would add more support to oil prices that recently topped $126 a barrel in European markets and touched $113 in New York Monday before Tuesday’s sharp retreat. See Futures Movers report on crude’s retreat and full story on an analyst calling for a 17% pullback in Brent crude futures.

The March turmoil in Libya demonstrated how “daily oil production at the margin, even if only 2% of global market demand, can spike the price of oil,” said Mark Williams, a risk-management expert who teaches finance at Boston University.

It was an oilfield fire last week in Libya that contributed to a more than 2% jump in oil futures Friday to their highest level in over 30 months.

Nigeria has a similar market share of world oil production to Libya’s, putting it in a position to jolt global oil markets if output there is curtailed. Nigeria produced slightly more than 2.2 million barrels a day in 2009, according to the U.S. Energy Information Administration’s latest data on the country. That output level made Nigeria the biggest oil producer in Africa — and 14th among the world’s top oil producers.

For U.S. oil buyers, Nigeria is even more important than Libya. Nigeria, a member of the Organization of the Petroleum Exporting Countries, is the fourth-biggest supplier of crude-oil imports into the U.S., after Canada, Mexico and Saudi Arabia.

In domestic affairs, oil plays an outsized role, as Nigeria’s largest export and its main source of foreign currency. Against this backdrop and a history of corruption — Transparency International ranks Nigeria as one of the 50 most corrupt countries — the energy complex there is particularly vulnerable if parties protest the election as unfair.

“The upcoming [presidential and gubernatorial] elections can produce greater uncertainty and political unrest,” BU’s Williams said.

Militants have been frustrated by the lack of benefits from oil production in the oil-rich nation. While Nigeria’s oil production is owned by the federal government, an estimated 80% of oil revenue goes to 1% of the population.

Gadhafi meets with African leaders A delegation from the African Union met with Libyan leader Moammar Gadhafi over the weekend in a diplomatic effort to stop the bloodshed in Libya. Video courtesy of Reuters.
‘A big ‘if’’

Nigeria’s current president, Goodluck Jonathan, is widely expected to win re-election, but his People’s Democratic Party is under pressure to stave off a cut in its majority in the National Assembly.

“The elections in Nigeria, if they result in reform of corruption and a distribution of oil profits to the general populace — either through direct payments or through infrastructure projects which create local jobs, could slow the attacks on oil facilities in the Niger Delta region,” said James Williams, an economist at WTRG Economics.

“However,” WTRG’s Williams said, “it’s a big ‘if.’ ”

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