Nigeria Civil Unrest Could Spark Venezuela-Style Oil Woes
sg.biz.yahoo.com Friday March 21, 3:11 AM By Selina Williams OF DOW JONES N EWSWIRES
LONDON (Dow Jones)--As global oil markets keep a nervous eye on possible disruptions to Persian Gulf crude shipments amid a U.S. war in Iraq, ethnic unrest in oil-rich Nigeria could become as potentially damaging to supplies as the crisis in Venezuela.
Political and civil unrest in fellow Organization of Petroleum Exporting Countries member Venezuela earlier this year cost the global oil market 125 million barrels, helped to drain U.S. commercially held petroleum stocks to critically low levels and combined with Iraq war jitters to push oil prices to well over $30 a barrel.
Although Nigerian output woes aren't critical yet, the situation could escalate and the timing of the crisis isn't great, says New York-based energy analyst Jay Saunders at Deutsche Bank.
"Nigeria won't be as bad as Venezuela, but the situation is volatile and it comes at a bad time," Saunders said.
The disruption of 156,000 b/d of Nigerian oil supplies due to clashes between rival tribes in the oil-rich Niger delta comes amid concerns that OPEC might not be able to compensate for the loss of crude oil supplies from more than one member.
As it is, OPEC has already pledged to cover a loss of some 1.7 million barrels a day of Iraqi crude exports due to the war. Thursday, legal exports of Iraqi oil through the U.N. oil-for-food program effectively halted following the departure of the last scheduled oil tanker from the Ceyhan oil terminal in Turkey.
However, OPEC Secretary General Alvaro Silva said Thursday that the group isn't currently worried about Nigeria.
"As Venezuela's production is normalizing, it wouldn't be a problem to fill in for a lack of production," he told reporters in Vienna Thursday.
But analysts say that it will be a while before Venezuelan output is back to its pre-strike level of around 3 million b/d as some of the oil fields and infrastructure were permanently damaged by the shut downs during the industrial action.
Nigeria Faces Unrest, Strikes, Elections
The clashes between rival tribes, that shut in oil produced by oil majors Royal Dutch Shell (RD) and ChevronTexaco, have left several people dead in one of the worst periods of violence in years. The skrimishes also follow in the wake of strikes over pay and conditions by the main oil workers unions in Nigeria.
And to top that all off, Nigeria's shaky democratic process will be tested by a round of presidential and parliamentary elections in April - the second since independence in 1960. Revenues from oil exports are one of the major issues in election campaigns.
It's not unusual for political upheavals in Nigeria to significantly impact output. A military coup in 1985 reduced the West African country's production by 10% and labor union strikes in 1994 cut output by 20%, a recent Deutsche Bank report said.
Oil traders on London's International Petroleum Exchange said the problems in Nigeria were "supportive" for the oil price Thursday and they were monitoring developments there.
But for the moment, traders were more focused on the escalation of U.S. airstrikes on Iraq, reports of fires near the southern Iraqi oil fields of Basrah and the Iraqi scud missile attacks aimed at Kuwait's northern Iraqi oil fields.
Physical crude traders said oil in storage facilities would plug the immediate shortfall of any missing Nigeria barrels and if the unrest escalates or the oil remains shut-in for a longer period, then delays to loading vessels would start to be felt.
For now the shut-in will mainly affect cargoes of oil that are scheduled to move in the next few days, the traders said.
Nigeria, which currently produces around 2 million b/d, is dependent on revenues from oil exports. It is one of the main oil exporters to the U.S.
- By Selina Williams, Dow Jones Newswires; +44 207 842 9262; selina.williams@dowjones.com