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AFX News Limited: Nigerian Oil Production Remains a Wild Card

Nigerian oil production appears to have weathered post election tensions so far, but the tinder box nature of politics in the country suggests that a deterioration, if it comes, will be sudden.

Crude prices added a geopolitical premium in the weeks ahead of the presidential elections held last weekend, but prices have since eased after traders succumbed to the view that a rally was unjustified unless oil output did fall.

Analysts say that the situation could turn, very quickly.

“There are concerns this is the quiet before the storm,” said Peter Luxton, energy analyst at Informa Global Markets.

The presidential election last weekend, won by president-elect Umaru Yar’Adua, has been slammed by international observers as corrupt and rigged. Outgoing President Olusegun Obasanjo will officially hand over power on May 29 in Nigeria’s first “democratic” election, where the presidency is given from one civilian to another.

Already there are signs that the transition will not be a smooth one. Opposition parties are due to stage protests on May Day and are calling for the results to be cancelled.

So far, while hundreds of people have been killed, there has been no disruption to the oil supply.

Analysts are also sceptical about promises made earlier in the week by Yar’Adua to protect the security of the Niger Delta, dismissing it as an obvious attempt to win popularity.

“He can’t say anything other than that,” said Dennis Gartman of The Gartman Letter, a daily trading note.

For now disruption to oil output is not on the market’s mind but as soon as next week they may have to — as Nigerian opposition parties are calling for mass protests against last week’s elections, he said.

The market is also waiting to see if output from Nigeria’s 380,000 bpd Forcados field, which has been shut in since February 2006, will restart and if Nigeria’s political problems worsen.

Royal Dutch Shell, Forcados’ main operator said it would restart operations “in the next couple of month,” but has not confirmed a date.

“No set date does suggest they’re not certain when it could come back,” said Luxton at Informa, adding that Shell is taking a cautious approach in case of “incidents that could delay it.”

Nigeria, where 95 percent of export revenues come from the oil sector, produces around 2.37 mln bpd, according to OPEC.

“As and when the restart is confirmed, exports begin and volumes ramp up, Forcados will…exert downward pressure on prices,” said Calyon analyst, Mike Wittner.

He added, however, as far as the oil market is concerned about Nigeria, it’s a “total wild card”, explaining disruptions to oil supply “could go either way.”

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