Bluepoint daily market view – January 23, 2012
Nigeria ready to explode – the next oil spike? In Nigeria, multiple explosions hit police buildings around the city, which has since been ordered under a 24-hour curfew. The attacks seem to mark Boko Haram’s deadliest assault to date, as the terrorist group seeks to overthrow the national government to impose a fully Islamic state in the country. Over recent months the group has increasingly targeted government buildings as well as Christian churches and civilians in an array of attacks killing hundreds. Approximately 150 bodies have so far been piled into the city’s mortuary, and Red Cross teams have been on the streets helping with the aftermath.
Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. It is the 10th largest oil producer in the world, the third largest in Africa and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector which supplies 95% of its foreign exchange earnings. According to the 2011 BP Statistical Energy Survey, Nigeria had 2010 proved natural gas reserves of 5.29 trillion cubic metres, 2.82% of the world. On the world corruption index (10 being the best and 0 the worst), Nigeria ranks 2.4. It has enormus wealth and enormus poverty. Its per capita GDP income ranks 175th of 227 countries in the world. So obviously the wealth of the country does not flow down to the people, due to corruption.
Nigeria as well has been rocked with nation wide strikes and protests against the government removing its oil subsidies it provides to it’s people. The Nigerian government is spending $350 million monthly on petroleum subsidy, the Managing Director of the Nigerian Liquefied Natural Gas (NLNG), Engineer Chime Ibenechie has said. The Nigerian government restored partially the subsidies to avert a nation wide crisis, but the anger still persists.
The situation in Nigeria is a disaster waiting to happen – if it is not already. It does look like it is reaching critical tipping point and could threaten to take out a significant part of the world’s oil market production. This, along with the ongoing build up to an Iranian crisis and a potentia civil war brewing back in Lybia, will keep the bid up in oil. Any dips in to the low to mid $90s per barrel, should be bought.