Oil Market Eyes Nigeria Unrest After Election Result Upheld

Anxiety over security of Nigerian oil supplies will hold prices near $100 a barrel for days to come, market participants said Tuesday.

News Tuesday that the Nigeria Elections Tribunal upheld President Umara Yar'Adua's 2007 election victory is expected to provoke further unrest in the country, Africa's largest exporter of crude and the source of around 7% of total U.S crude imports.

International observers widely condemned the way the April 27 election was conducted amid allegations of vote rigging and intimidation. Yar'Adua's victory was contested by two opposition candidates alleging widespread electoral fraud.

A report published this week ahead of the special tribunal by the U.K.'s All Party Parliamentary Group on Nigeria was deeply critical of the Independent National Electoral Commission's conduct so far, and called for reform of the body which should have overseen the electoral process.

An appeal of Tuesday's ruling is likely, although analysts are wary that the result could trigger a violent response. "What should keep the oil markets on edge is if this whole process breaks down, and takes on a more violent turn, just like we saw in Kenya," said Edward Meir, an analyst at brokerage MF Global in New York.

Africa's most populous country is bracing itself for unrest following the result, with the number of army troops in the important oil-producing Niger Delta region increased significantly.

Sebastian Spio-Garbrah, analyst at Eurasia Group said he expects localized incidents of violence to flare-up, and noted police forces numbers have been increased in a number of urban areas.

"It is likely simmering tensions in the Niger Delta could also rise in tandem with an overall rise in national political tensions," the analyst added.

The front-month Nymex light, sweet, crude oil futures price rocketed to an all time high of $101.32 a barrel Wednesday, partly propelled by renewed threats of violence from leading militant group the Movement for the Emancipation of the Niger Delta, or MEND.

Although the Nigerian government swiftly moved to deny rumors MEND's leader Henry Okah was shot while being detained in government custody it failed to allay market participants fears.

Okah, thought to be MEND's leader,was arrested at Luanda airport in September last year, for allegedly transporting guns to South Africa.

"The extradition of the MEND leader, from Angola to Nigeria is a point of worry," said Olivier Jakob at Petromatrix, and had stoked oil market fears "due to the possible escalation of violence in the power game between the MEND and the Nigerian Federal Government."

More than 500,000 barrels a day of Nigerian crude oil production is currently thought to be shut-in largely as a result of militant activity.

Nigerian crude output volumes received a boost after Royal Dutch Shell PLC (RDSB) was able to restore some production from its Forcados crude facility earlier in the month, but total amount shut-in still represents around 20% of Nigeria's output capacity, based on the International Energy Agency's latest estimated effective production capacity of 2.47 million barrels a day.

Further cause for market concern surrounds the possibility of curtailed output from the Bonga facility where planned March maintenance could raise total shut-in output by up to 225,000 barrels a day.

Copyright (c) 2008 Dow Jones & Company, Inc.


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Brent Crude Oil : $51.78/BBL 0.77%
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