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Nigerian government agrees ceasefire with militants in oil-rich Niger Delta: official

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London — The Nigerian government has agreed a ceasefire with militants in the oil-rich Niger Delta, including the Niger Delta Avengers, as renewed militancy has dragged the country's oil output close to 30-year lows, a Nigerian oil ministry official said Tuesday.

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The official told S&P Global Platts the oil minister had "succeeded in extracting a deal for a cease fire with militants" and these talks have been taking place "over the past two weeks with people close to the Niger Delta Avengers."

Reports have said government negotiators, led by the junior oil minister Emmanuel Kachikwu have agreed to a 30-day ceasefire allowing President Muhammadu Buhari's administration more time to come up with a comprehensive plan to tackle militancy in the Niger Delta.

Niger Delta Avengers had previously said it would only agree to talks with the government if foreign countries including the US, UK and France were part of the negotiations.

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The government formed a panel a few weeks ago led by National Security Adviser Babagana Monguno to negotiate with rebels who attacked oil installations in the region. The Nigerian government and the nine states of the Niger Delta region agreed in mid-May to raise a joint security team to curb growing militancy.

Nigerian oil output had slumped from 2.2 million b/d to around 1.4 million b/d in early-May, and production was now in a range of 1.5 million-1.6 million b/d as militant attacks have intensified with the emergence of a new organization calling itself the Niger Delta Avengers.

Nigeria produced 1.42 million b/d in May this year, the lowest since January 1989, according to Platts OPEC survey data, as exports and production of popular crude exports grades like Qua Iboe, Forcados, Bonny Light, Brass River and Escravos were all affected.

Recent attacks have been brazen and increasingly focused on blowing up oil pipelines and oil platforms rather than siphoning crude oil, leading the country to lose its spot as Africa's largest oil producer.

Previously, Buhari and the military high command had taken a hard-line approach to tackling the resurgent violence in the Niger Delta, while government troops had launched repeated raids on communities in the region in the hunt for militants.

But the military clampdown was met with more bombings of oil targets by militants.

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Kachikwu said in early-June oil production should recover to 2.2 million b/d by the end of August.

"Most of the disruptions of production are as a result of the militancy activities," said Kachikwu, speaking to reporters ahead of the OPEC ministerial meeting in Vienna.

"We expect to get back 300,000 b/d that was lost in the next one month, potentially in July and the balance obviously by the end of August. We expect to get back to 2.2 million b/d by end-August," he said then.

The sharp drop in oil production has severely hurt the country's economy, already reeling from the slump in global oil prices, as renewed militancy in the oil-rich Niger Delta has resurfaced after years of relative calm.

Nigerian crudes have lost their popularity in the past few months as dwindling oil production has resulted in the declaration of forces majeures on its key export crude grades.

Key buyers of Nigerian light, sweet crudes like refineries in India, Spain and the Netherlands have reduced their Nigerian crude purchases as a result, according to traders.

Analysts and trading sources welcomed news of the ceasefire, but most were skeptical there would be much immediate impact.

"I honestly don't think it will have a big effect unless everybody sees for a longer period that it is reliable to load there," said a trader active in the West African crude oil market.

"But let's see. Unfortunately, I don't think a 30-day ceasefire is actually a good sign for the Nigerian situation especially if we consider we are now talking about the August [loading] program, therefore after the ceasefire," he added.

Crude oil prices have risen steadily in the past few months and one of the main reasons for this has been the supply disruptions in countries like Nigeria, Canada, Venezuela and Iraq.

But analysts were wary that this news would have an immediate impact on oil prices in the Tuesday trading session.

"On paper they are supposed to stop for the next 30 days but doesn't mean that oil will flow massively into the world because they need to know what [are the] damages," said Michael Poulsen, an oil risk manager at Global Risk Management.

Brent crude futures were already down in Tuesday morning trading before this news, driven by political rhetoric and swinging opinion polls in Europe, with Thursday's UK referendum on continued membership of the EU remaining the key driver.

At 1152 GMT, the August ICE Brent futures contract was trading at 49.75/b, down 90 cents from the Monday's settle of $50.65/b.

The July NYMEX, light sweet crude futures contract, which expires Tuesday, was down 77 cents at $48.60/b.

--Eklavya Gupte, eklavya.gupte@spglobal.com
--Caroline Knight, caroline.knight@spglobal.com
--Dimitrios Moraitelis, dimitrios.moraitelis@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com