Violence during Nigerian Election Season an Upside Risk for Oil Prices

Commodities strengthened in European session as no further bad news released so far. Eurozone's PPI grew less than expected in February with the annual reading rising +6.6%, compared with consensus of +6.7%. January's reading was revised lowed to +5.9%. However, this is not likely to shake ECB policymakers' determination curb inflation by curbing interest rates.

While fighting in Libya and tensions in other Arab countries continue, general elections in Nigeria may be a threat to oil supplies. On March 16, the Movement for the Emancipation of the Niger Delta (MENA) bombed an oil facility run by the subsidiary of Italian energy major Eni SpA. The rebel group pledged further action. We believe the market has not yet priced in attacks of oil facilities in Africa's third largest oil producer during election periods. If these really happen, 10% of US' oil imports will be affected and oil prices should set to rise from recent highs.

A new round of bombings indeed began during Christmas Eve when 7 explosions went off in Jos and killed 80 people. The area has been a center of social and political unrests with 600 people killed last year. 2 bombs exploded in capital Abuja on New Year's Eve, killing 4 people and injuring 26. Violence is common during election seasons. In both the 2003 and 2007 elections, attacks and fighting were seen, especially in the Niger Delta and the Middle Belt. In the 2007 election, destruction to oil facilities in the country suspended supplies of as much as 1M bpd.

Let's take a look as Nigeria's oil market. The country has been an OPEC member since 1971. It has the second largest oil reserves in Africa and is the continent's primary oil producer. Nigeria exports almost 90% of oil produced every year. In 2009, it exported 1.9M bpd out of total production of 2.2M bpd. Around 40% of oil exports were delivered to the US, making it the 5th largest oil supplier to the US. Apart from the US, Nigeria exports around 20% of oil to each of Europe and Asia, 10% to Brazil and 4% to South Africa. While disruption in Libyan oil production has bolstered Brent crude oil more than WTI crude, stoppage of Nigerian oil infrastructure may affect the latter more due to the export profiles.