After some two years of failed efforts, the NOPEC (No Oil Producing and Exporting Cartels) Act passed by a Senate panel Thursday. in a 17: 4 vote. The bipartisan support of this dangerous, controversial, and arguably illogical piece of legislation, but even the White House now seems to be impeccably weighing the implications. The legislation, which will have to be passed by the full Senate and the House and then into law by the President, will essentially give the US the ability to sue OPEC (and any foreign producers) for price collusion, market manipulation… activities.
A week ahead of the Senate Judiciary Committee vote on NOPEC, the committee’s top Republican and sponsor of the bill, Chuck Grassley (R-Iowa) told the media that he fully expected bipartisan support for rising gasoline prices at the pump. “It’s a violation of US antitrust laws for collusion to occur among businesses,” Grassley was quoted as saying. “The same principle applies to governments.”
“Begging oil cartels are not the answer to the fight for sky high ga $ price,” Senator Grassley said on Twitter. price-fixing / market manipulation. ”
There are two underlying assumptions here that break with the reality of our current energy situation, however. The first assumption is that OPEC is to blame for the pain Americans are experiencing at the gas pump because of its member countries’ default quotas on output quotas… and for the inflating prices of consumer goods. expensive. While the obvious culprit is a brutal Russian war on Ukraine that provokes a Western sanctions response (the alternative is simply to let Russia annex whatever country’s territory it wants), OPEC is taking the blame for increasing output quotes. down.
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The second assumption is that the OPEC is the only “cartel” able to influence the oil market. That assumption no longer carries too much weight, probably not much since around 2018, when some of the top oil producers in the US have some metrics.
That’s the United States enjoys a free market and can’t control its big shale producers and force them to ramp up production when they would rather have a spending discipline and reward their shareholders than OPEC’s fault. Nor is it solely OPEC’s duty to pick up the American producers when it slacks.
Nor is OPEC even OPEC more… It’s OPEC +, adding Russia to the oil mix and possibly the Russian oil is now on the decline.
It’s not the same cartel that it used to be, and this is not the same world or the same oil market that existed in the early 2000s when the idea of NOPEC emerged. And even then, it was rejected, time and again.
Today, there are many things “influencing” the market purposefully, including releases from strategic petroleum reserves, which are explicitly designed to influence prices in a very ‘NOPEC’ sort of way. And SPR releases saw governments to “colluding” to combine them to maximum effect.
The White House Seems Wary
Following the Senate panel’s passage of the NOPEC legislation, the White House re-enacted a bill that would have its opponents happy.
Speaking of the “potential implications and unintended outcomes”, the White House said it would “require further study and deliberation”.
“Our objective is to ensure that the supply and the oil markets meets the demand, and that the operation has a role to play,” Argus quoted the White House as saying given Putin’s invasion of Ukraine. “
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The American Petroleum Institute (API) is dead set against it.
Retaliation, opponents feel, is a certainty that could potentially upset the free market operations of an incredibly strategic American shale patch.
The blowback could come in a variety of forms. One of them could be an attack on the “petrodollar” of a repeat of a 2019 threat to the Saudis to sell its oil in other currencies if the NOPEC became law. If the Saudis shifted from the dollar to oil sales it would have a significant impact on both the dollar’s status and America’s global trade leverage, according to Reuters. And the timing could be worse, with Russia’s war on Ukraine raging and severe sanctions in effect. Those sanctions would have a weakened dollar with far less power. To put this into perspective, consider that some 80% of global oil transactions are denominated in dollars, as noted by Quartz.
As recently as March this year, reports emerged that Saudis were making oil sales to China in Yuan. It’s a theme that has come up in the past couple of years, but its emergence in March coincides with worsening US-Saudi relations and the Biden Administration’s blatant snubbing of the Saudi Crown Prince. In retaliation, Riyadh has been cozying up to China’s late, and China has been courting oil purchases in Saudis.
The Saudis peg their riyal to the dollar, which sells its oil in yuan rather than self-defeating as it would hurt the riyal. Still, if push comes to shove, and bad relationships escalate into escalator, Riyadh could feel cornered enough to entertain first with a dollar and then prop up a ‘petroyuan’. It would be a drastic move, however, and while a dependency has been very likely studied in Saudi Arabia, there have been zero indications of it happening any time soon.
A second form of blowback could be a hike in the price of oil exported to the United States. That would just be blowback… it would be the reverse of NOPEC’s current intention. And the Saudis can engineer a price hike just by releasing a statement saying they have no spare capacity. The markets will respond immediately.
It may all be a mute point. As Reuters points out, the bill on the White House stance is unclear. We have no idea Biden even supports it. We also have no idea if there will be enough support in Congress to pass it on, which means that Biden at this point has no skin in this game and no clear statements to make.
Oilprice.com for Tsvetana Paraskova
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