Nigerian Election Result Keeps Oil Market on Tenterhooks

LONDON Apr 23, 2007 (Dow Jones Newswires)

Traders of West African crude oil are keeping their eyes firmly fixed on reaction to the result of the Nigerian presidential election to gauge whether oil flow from Africa's biggest producer will be in jeopardy.

For now, no reports of disruption to oil supply have emerged but fears the declaration of Umaru Yar A'Dua, the People's Democratic Party candidate, as the new president may light the touch-paper for another round of violence is adding risk premium to oil prices.

"I haven't heard anything adverse in terms of production, but I think most of the traders are holding back a little, to see what happens after the (official) result is announced," a London-based trader said Monday.

Electoral Commission Chairman Maurice Iwu said Yar A'Dua won in a landslide victory, with about 24.6 million votes, more than three times the number garnered by the runner up. But throughout the election international observers have questioned the credibility of the polls and opposition members are calling for a rerun.

"If the government's security forces fail to get a strong hold over the situation then a descent into chaos can be expected as people will likely protest the result," warned analysts Thomas Pearmain and Kissy Agyeman at consultancy Global Insight.

By contrast Sebastian Spio-Garbrah, analyst at Eurasia Group, thinks the troubled oil-producing region, the Niger Delta, may finally benefit from tougher "law and order" under an authoritarian Yar'Adua presidency.

"The new federal government will need all the oil it can get from the 25,000 square kilometer patch to fund the operations of the state," Spio-Garbrah said. "It will likely do all that it can, using both 'carrots and sticks' to pacify the region in order to increase oil production."

Oil supply from the Organization of Petroleum Exporting Countries member Nigeria is closely monitored by the international oil market. Nigeria produces around 2.1 million barrels of oil a day and the light, sweet crude oil grades it produces, such as Bonny Light, Qua Iboe and Forcados, are highly prized by refiners for their easy conversion into gasoline.

Looking beyond the election result the outlook remains extremely bullish for Nigerian output after news last week that the Forcados oil field is expected to come back online in time for June loading. The 380,000 barrels a day capacity Forcados oil field had been closed since February as a result of attacks on oil facilities by local militants.

As a result, market participants are now beginning to doubt whether a new government will stick with the tight adherence to the country's OPEC output restrictions demonstrated in the last three months.

"Following this weekend we could have a new government," said a trader of West African crude. "But the question is, with $66 a barrel oil, are they going to hold to the monthly output threshold as strictly as we have seen."

Details of the Nigerian June crude loading program confirm four 950,000 barrel cargoes of Forcados grade crude oil due to load in June, in addition to 11 Bonny Light and 13 Qua Iboe, unchanged from May.

"With Angola production increasing without a quota limit and Brent over $66 a barrel, we do not see Nigeria voluntarily cutting its other streams if the Forcados capacity is coming back," added Olivier Jakob analyst at Petromatrix.

Copyright (c) 2007 Dow Jones & Company, Inc.