Concerns Grow About Big Drop in Nigerian Oil Production

There are increasing worries that Nigerian oil production could fall even further at the end of the month if militants succeed with threatened attacks, planned to coincide with the handover of power from President Matthew Olusegun Aremu Obasanjo to his successor on May 29, sources and traders in the energy industry said Wednesday.

One source, who works in Nigeria, fears that militants "certainly have a chance" of halting the majority of production, if at least temporarily.

He says the oil industry in Nigeria depends on a relatively benign operating environment and if Nigerian government security forces can't provide adequate protection then companies operating in the Niger Delta region face huge risks.

But Nigerian Oil Minister Edmund Daukoru told Reuters Wednesday that he expects the violence in the Niger Delta to die down once the new administration takes power and that Shell could resume production at its Forcados oil terminal in June.

Royal Dutch Shell have had 500,000 barrel per day of production shut in since February 2006 and that has increased by up to 150,000 barrels a day in the past two days, the source added.

Shell declined to comment to CNBC. A spokesman for Chevron, which also operates in the region, said it had not heard about the possibility of all production stopping.

Chevron Oil Workers Kidnapped

Four Chevron oil workers were kidnapped by rebels from a barge off the Nigerian coast on Wednesday.

"Much of the production is in the crosshairs," said John Kilduff, senior vice president at Man Financial and a CNBC contributor, when asked about market concerns about Nigeria.

Shutting down all of Nigeria's oil production has "been much more of an achievable risk since the end of 2005, when the Movement for the Emancipation of the Niger Delta (MEND) came on the scene," said Nadina Bernecker, senior intelligence analyst for AKE Security, which provides protection for oil infrastructure in the region.

Militants have achieved roughly a 25% halt to production, which is successful for a group that size, outnumbered by military, Bernecker told CNBC.com.

New York light crude futures held above $62 a barrel in electronic trading Wednesday, with traders citing recent attacks as supporting prices.

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