Nigerian unions and President Goodluck Jonathan began a meeting on Saturday evening to try to defuse a row over the removal of fuel subsidies that has paralysed the economy and raised fears of a shutdown of Nigeria's oil industry, official sources said.

They said the meeting could last well into the night and was crucial to resolving strikes and protests that brought Nigeria to a standstill this week. Workers in the vital 2 million barrel-per-day oil industry have threatened to halt production.

The strikes are costing Africa's second biggest economy around $600 million a day, Central Bank Governor Lamido Sanusi told Reuters on Thursday.

The strike is affecting us badly and they need to agree on something soon so that Nigeria can get back to normal, said shopkeeper John Ikechukwu at Lagos' run-down Falomo market.

Union leaders met members' representatives in the capital Abuja to agree a negotiating position ahead of the talks in Jonathan's presidential villa, said Owei Lakemfa, general secretary of the National Labour Congress.

We have resolved to insist on the government reverting to 65 naira a litre, one union representative told Reuters.

Tens of thousands of people took to the streets and staged strikes for five straight days in protest against the removal of a fuel subsidy on January 1, which raised the price of petrol at the pump to 150 naira ($0.93) per litre from 65 naira before.

Unions have suspended strike action for the weekend, pending the Saturday talks in which they and the government are expected to reach some kind of agreement. If they do not, strikes will continue from Monday next week, unions said.

The government's expectation is that today's meeting will bring an end to the whole crisis so that the nation can move forward, a senior source at the presidential villa told Reuters.

Gasoline tankers have been unable to deliver supplies to Nigeria, which despite its oil riches, imports most of its refined petroleum products.

Motorists formed a long queue at one pump station near central Lagos, Nigeria's largest city, in the search for fuel that after a week of strikes was not readily available even at the new higher price.

Nearby a young man peddled black market petrol, using a hose spouting out of a jerrycan. I have fuel for 350 naira a litre if you want, he said.

STRIKE FATIGUE

Officially, the unions' negotiating position has been to accept nothing less than the old 65 naira per litre price, although economy watchers expect them to soften their stance.

One possibility is an agreement on a higher, but still heavily subsidised, price that would mean it remained a major burden on public finances.

I think they might agree on a compromise and remove part of the subsidy. I think they will come to around the 100 naira range in the end, said David Negedu, a Lagos-based financial analyst at investment advisory firm S&C Consultancy Ltd.

Another is that the government agrees to reinstate the subsidy fully, but then aggressively phases it out from April, as was originally planned before its shock axing on January 1. That would be unlikely to please the unions.

In the alternate scenario ... the two sides are unable to bridge the negotiating gap in so little time, Eurasia Group's Philippe de Pontet wrote in a research note.

This is both because of union intransigence and because factions around President Jonathan think the non-union participation in strikes will start to dissipate next week ... that strike fatigue will set in among ordinary Nigerians.

The confrontation is a serious setback for Jonathan, already under fire for failing to quell an increasingly violent Islamist insurgency in the north.

Most fuel price demonstrations have been peaceful this week, but at least three protesters have been shot dead by police. A police officer has been arrested for killing a man in Lagos.

Industry officials doubt unions can stop crude oil exports completely because production is largely automated and Nigeria has crude stored in reserves, but even a minor outage could have a significant impact on the economy.

Nigeria accounts for 8 percent of U.S. oil imports, and is also a key source for Europe and Asia. Crude oil exports account for more than 90 percent of foreign exchange earnings and 80 percent of government revenues.

(Additional reporting by Camillus Eboh in Abuja, James Jukwey, Chijioke Ohuocha and Tim Cocks in Lagos; editing by Ben Harding)