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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Washington Eyes Crackdown On OPEC

Legislation targeting OPEC is suddenly gaining steam in the U.S. Congress, raising alarm bells for the cartel.

On Thursday, the House Judiciary Committee passed a bill that would allow the U.S. Justice Department to sue members of OPEC for manipulating the oil market. The so-called “NOPEC” bill would remove sovereign immunity, exposing member countries to antitrust regulation.

The bill has appeared in the past under prior administrations. But previous presidents from both political parties have opposed taking punitive action, fearing damage to the U.S.-Saudi relationship.

Times have changed. President Trump has repeatedly posted angry tweets about OPEC, blaming it for high gasoline prices. That led to a revived push for the NOPEC legislation. The murder of Saudi journalist Jamal Khashoggi may have also been a turning point, erasing a lot of goodwill for Saudi Arabia in Washington.

In theory, OPEC members could face confiscation of their assets in the United States. Saudi Aramco, for instance, controls Motiva Enterprises, which owns the largest oil refinery in the country in Port Arthur, Texas.

According to the Financial Times, the prospect of the NOPEC bill becoming law has raised alarm bells not just for OPEC, but also for international oil companies who fear reprisals abroad. Companies like ExxonMobil and BP have major stakes in projects in places like Nigeria and Iraq. These OPEC-member countries could retaliate if they face punitive action from the U.S. government. The FT reports that the oil majors, along with the American Petroleum Institute and the U.S. Chamber of Commerce, are lobbying against the NOPEC legislation.

Analysts speculate that Qatar exited OPEC in 2018 not just because of its rivalry with Saudi Arabia, but also because it has major interests in the U.S., and does not want to face antitrust action. Qatar Petroleum, along with ExxonMobil, just gave the final investment decision for the $10 billion Golden Pass LNG project in Texas. Related: Chevron Looks To Double Permian Production By 2022

So, what are the odds of passage for the NOPEC bill? Joe McMonigle, senior energy policy analyst at Hedgeye, told Reuters that low oil prices have removed some of the urgency. “I don’t see any kind of groundswell for it,” McMonigle said.

However, the takeover of the U.S. House of Representatives by the Democrats gave momentum to the bill. One of the first acts of the new House Judiciary panel was to take up the legislation, which it quickly approved on February 7. A full House vote is now possible.

In fact, there is suddenly quite a bit of bipartisan support for the bill, making it closer to becoming law than at any point in history. Senator Chuck Grassley, a Republican, has proposed a companion bill in the Senate. “The oil cartel and its member countries need to know that we are committed to stopping their anti-competitive behaviour,” Grassley said. Across the aisle, Sen. Amy Klobuchar of Minnesota, also representing a state with significant ethanol interests, came out in support of the bill.

“Given President Trump’s known hostile stance towards OPEC it now looks like a very good chance that the bill will be voted through,” Bjarne Schieldrop, chief commodities analyst at SEB, said in a statement. “The prospect of a passage of NOPEC legislation has added bearish pressure to Brent crude.”

It is still too early to say with any certainty, but if the NOPEC legislation were to become law, it could theoretically make it much more difficult for OPEC to set production limits with the aim of achieving certain price targets. It could also put in jeopardy the formalization of the OPEC/non-OPEC alliance with Russia, the so-called OPEC+ arrangement. OPEC and the non-OPEC group led by Moscow are currently negotiating such an entity. Related: The Next Big Threat For Oil Comes From China

Still, countries could individually raise and lower production. Or, more specifically, Saudi Arabia – the only country that can make massive changes to production levels – could still tailor output to meet strategic goals. But it wouldn’t be able to call upon other countries to chip in. “The NOPEC legislation could end tactical, cooperative production cuts and increases orchestrated by OPEC,” Schieldrop said. “It will probably not hinder Saudi Arabia to move production up and down on its own in order to address tactical turns and imbalances in the global oil market.”

Othes see a more significant impact. “We are just a tweet away from Nopec becoming law,” Bob McNally of the Rapidan Energy Group told the FT. McNally said the legislation could lead to more volatility and lower prices if OPEC was unable to restrain supply. “After a good dose of Nopec, if it was successful, we would end up begging them to reunite, get back into business and start controlling supply,” he added.

Maybe. But outside of oil companies themselves, there isn’t a massive constituency in the U.S. for OPEC. The cartel is not exactly popular in the United States. Moreover, if the NOPEC legislation became law and pushed down oil prices, Trump could claim credit and millions of American motorists would probably be thankful. It seems unlikely that there would be a political price to pay in the U.S. for lower oil prices and a crackdown on OPEC, even if American oil companies faced reprisals. Nobody is going to shed a tear for ExxonMobil if the company suddenly runs into trouble in Iraq or Nigeria because of the NOPEC law. 

By Nick Cunningham of Oilprice.com

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  • John Di Laccii on February 11 2019 said:
    Absolutely great news, after this ME can say goodbye to its monopoly, no more 100 usd per barrel. The future has to belong to the West because until now it was a pure blackmail and addiction to black gold. While the West was struggling with shortage of raw materials the others were manipulating the prices. This has to stop. Its almost as charging someone to breath the air. Energy is nowadays available elsewhere, and this kind of slavery and dependence has to be abandoned. The price by now was absolutely too high. Money for nothing and female Ruskies for free, hopefully will not happened ever again. Crush OPEC. Turkey will follow.
  • Mamdouh Salameh on February 11 2019 said:
    OPEC is not a cartel and has never been one though its history. How could it be a cartel when it was founded as a counterweight against the previous “Seven Sisters” (Exxon, Mobil, Chevron, Gulf Oil, Texaco, BP & Shell) cartel which dominated every aspect of global oil through price fixing, limiting supplies and suppressing competition for the sole purpose of maximizing its profits.The main purpose behind the founding of OPEC was to give producers more control over their own oil. OPEC has been a force for good with its efforts to stabilize the global oil market and oil prices for the benefit of the global economy.

    Therefore, OPEC shouldn’t be unduly worried about the“No Oil Producing and Exporting Cartels Act,” or NOPEC Act. It has enough muscle to retaliate against the US. If NOPEC ever becomes a law and the United States tried to sue any OPEC member under the NOPEC Act, OPEC members collectively could retaliate by withdrawing every single penny they keep in the United States and stop investing in the US altogether. They could also stop all their oil exports to the US and even cut their oil production to force prices up. This will harm the US economy most being the world’s largest consumer of oil. They could also nationalize American interests in their oil industries and discard the petrodollar and adopt the petro-yuan instead.

    Saudi Arabia and other OPEC members should remember how President Trump threatened Saudi Arabia with severe punishment if it is proven that the Saudi journalist Jamal Khashoggi was murdered. But when Saudi Arabia threatened to retaliate with stronger measures against any US punishment including cutting its oil production steeply and cancelling its arms deals with the United States, President backed down.

    The United States has so far broken the rules of the World Trade Organization (WTO) by imposing sanctions on virtually everybody, walked away from United Nations-recognized Iran nuclear deal and also the UN-supported Climate Treaty without batting an eye lid. Moreover, the United States has been manipulating oil prices through the petrodollar and also through exaggerated claims about rises in US oil production and huge build-up in its oil and refined products inventories in order to depress oil prices and achieve geopolitical and economic aims. One who lives in a glass house shouldn’t throw stones.

    In fact, OPEC should pre-empt and sue the United States at the WTO for manipulation of oil prices to achieve unfair benefits for its economy at the expense of the economies of OPEC members.

    One would expect a cartel to curb production in order to raise the price of its product as well as to share market among its members. However, OPEC has never once tried to fix a specific price nor has ever been able to achieve this goal. The fundamentals of the global oil market are the ones that have always determined the oil price helped occasionally by geopolitics. OPEC has no control on these fundamentals and therefore has no control on the movements of prices. For instance, OPEC was not able to prevent prices from falling in the 1980s even after it adopted the production quota system in 1982. Moreover, OPEC was neither able to temper oil prices in 2008 when prices rocketed to $147 a barrel nor was it able to stop the 2014 oil price crash.

    When it comes to limiting oil supply, a true cartel like the “Seven Sisters” was able to do exactly that because it was virtually in control of global oil resources. OPEC has never been in such a situation. It only accounts for 42.6% of the global oil market with the rest of the oil-producing nations of the world accounting for 57.4%.

    Moreover, OPEC has not been involved in any disputes related to the competition rules of the WTO, even though the objectives, actions, and principles of the two organizations diverge considerably.

    Therefore, the threat to sue OPEC or its members is more of a hot air.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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