Oil: It’s NOT about the Saudis, it’s About Nigeria

Much was made over the past few days about Saudi Arabia unilaterally increasing daily production by about 300,000 barrels starting in June. It’s an increase in their production of 3.3%. (This increase was made outside of the OPEC umbrella.)

Did the crude market celebrate?

The newspapers and media made it seem like this was the answer to our prayers.

But the Saudis are but a bit player now in the global energy market. And I don’t mean that in production- as they are still a huge producer. In June they’ll make 9.45 million barrels a day. Worldwide usage is just over 80 million barrels a day.

But the 300,000 barrels is almost laughable.

Watch Nigeria

For the past month, Nigeria, which produces about 3 million barrels a day, has had nearly half of its production off-line for a variety of reasons.

First, there was a strike at one of Exxon’s facilities that processes about 800,000 barrels a day (since resolved.)

And then you have the Rebels, who have been active in blowing up various pipelines, taking hostages on ships, and otherwise disrupting production. This group of armed men have been more successful at pushing up world oil prices than any other terrorist group (al-Qaeda included) or oil producing country.

The United States media has barely covered the Nigerian Rebels. But the rest of the world’s media hasn’t turned a blind eye to what is going on in that country and its impact on the energy markets. From the London Times in early May:

A Nigerian rebel stands guard after a Royal Dutch Shell base was bombed in the state of Bayelsa at the weekend. Attacks by the Movement for the Emancipation of the Niger Delta have raised the price of oil to a record $122 (£62) a barrel.

The Niger Delta rebels said they would stop attacks on the oil industry if the Nigerian Government would allow Jimmy Carter, the former US President, to act as a mediator in the conflict. The rebels, whose campaign of violence has cut output in the largest African oil producer by about a fifth, asked Mr Carter to act as a negotiator earlier this year. “We are ready to call off all hostilities and hold a temporary ceasefire in honour of President Carter should the Nigerian Government accept,” the rebels said in an e-mailed statement.

John Stremlau, the vice-president for peace programmes at the Carter Centre, said that Mr Carter would take such a request from all parties seriously but it was “woefully premature to suggest he will plunge himself into mediating this conflict”.

They have rifles, pipe bombs and whatever else. And they are causing damage to America’s fifth largest oil importer. (American refineries love Nigeria’s light sweet crude, which can be more easily refined into gasoline.)

So forget about the Saudis. They are old news. People better start paying attention to what is happening in Nigeria. The longer some of their production stays off line, the tighter world supplies.

And believe me, the Rebels know it.