Monday, June 22, 2009

Nigeria’s Impact on Oil Prices

Summer has begun in the United States, and those planning on driving over the next few weeks have seen gasoline prices increase daily since May. While the volatility of the world oil market is not as great as a year ago, there are concerns that foreign issues – especially in America’s leading Africa supplier – could lead to a spike in gasoline prices soon if troubling trends continue.

Thus far, the massive demonstrations and unrest in Iran have not caused oil prices to skyrocket as they might have in recent years, nor has the prediction of 2009 hurricanes causing the shut-in of an estimated 4.5 million barrels of crude oil refining. An explosion this past weekend at Sunoco’s Marcus Hook, PA, plant briefly caused concern, but there is optimism since the fire was brought under control relatively quickly. Currently, there is a great deal of spare global oil production capacity available to cover deficits from some locations.

However, Nigeria is Africa’s largest supplier of crude oil, and more than half its oil production is exported to the United States. Nigeria’s light, sweet quality crude is the preferred oil for American refineries, and an increase in shut-in oil could exacerbate the anticipated slowdown due to hurricanes during the current season (June – November). Consequently, the attacks this past weekend by the Movement for the Emancipation of the Niger Delta (MEND) that blew up two oil and gas pipelines in Nigeria’s southern oil-producing region and their threat to block waterways to disrupt exports is causing growing concern for the possibility of higher oil prices.

As the economic engine of West Africa and the largest single market on the continent, not to mention a major political player in Africa, Nigeria is always a major part of U.S. foreign policy. Even if President Obama does not visit Nigeria during his first visit to sub-Saharan Africa, that country has to be among the policy questions discussed in Ghana. Moreover, it must be a major part of the Africa policy formation. Millions of drivers watching the price at the pump slowly, but steadily creep ever higher, most don’t make the connection between Nigerian unrest and higher gasoline prices, but American policymakers must not only make that connection, but do something about it before higher gasoline prices derail the gradual improvement in the U.S. economy.

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