The NOPEC Bill Could Send Oil Prices To $300

  • For decades, different forms of ‘NOPEC’ legislation designed to pave the way for lawsuits against OPEC have been considered by Congress.
  • Last week, the U.S. Senate Judiciary Committee approved the NOPEC bill, leading to pushback from both within and outside the U.S.
  • OPEC’s most influential energy ministers warned that the bill could send oil prices soaring by 200 or even 300 percent.
If the U.S. passes the NOPEC bill, a bill designed to pave the way for lawsuits against OPEC members for market manipulation, the oil market could face even more chaos. OPEC’s most influential energy ministers warned against passing the legislation, suggesting it could send oil prices soaring by 200% or 300%.   “The last thing we want is someone trying to hinder that system,” the UAE’s Energy Minister Suhail al-Mazrouei said at a conference in Abu Dhabi, referring to the system OPEC has had in place for decades to ensure supply to the market is adequate (adequate according to OPEC’s view).

“If you hinder that system, you need to watch what you’re asking for, because having a chaotic market you would see … a 200% or 300% increase in the prices that the world cannot handle,” al-Mazrouei said at a panel at the World Utilities Congress hosted by CNBC’s Dan Murphy.

As gasoline prices in America hit record highs, some lawmakers are looking to resurrect the NOPEC legislation that would allow the U.S. Attorney General to sue OPEC or its member states for antitrust behavior.

Forms of a NOPEC bill have been considered in Congress committees for nearly two decades, but they have never moved past committee discussions.

Now OPEC is warning of greater market chaos if NOPEC becomes law. But it’s not only OPEC that has been warning about the implications for America in setting a precedent to remove sovereign immunity. The most powerful oil lobby in the United States, the American Petroleum Institute (API), is also against such legislation, arguing it would bring unintended harm to America’s oil and gas industry and American interests in the world. So is the U.S. Chamber of Commerce, while the White House expressed “concerns” about the potential implications of such a law.

Last week, the U.S. Senate Judiciary Committee approved the so-called No Oil Producing and Exporting Cartels Act (NOPEC).

Forms of antitrust legislation aimed at OPEC were discussed at various times under Presidents George W. Bush and Barack Obama, but they both threatened to veto such legislation.

This time, it’s unclear if the bill would be moved for discussion at the Senate, or then to President Joe Biden’s desk, and it’s unclear whether he would sign such legislation into law.

Related: Europe May Lose The Energy Transition Race Before It Really Begins

Commenting on the U.S. Senate Judiciary Committee’s approval of the NOPEC bill, White House Press Secretary Jen Psaki said last week:

“I don’t have an official position on this legislation right now, but we do believe that this potential — the potential implications and unintended consequences of this legislation require further study and deliberation, particularly during this dynamic moment in the global energy markets brought about by President Putin’s invasion of Ukraine.”

“So, we’re taking a look at it and certainly have some concerns about what the potential implications could be,” Psaki added.

Major trade groups have already expressed opposition to the bill, arguing it could backfire on America’s oil and gas industry and U.S. interests.

The bill could have an unintended negative impact on America’s oil and gas industry, the API said in a letter seen by Reuters.

The API has opposed NOPEC legislation during previous discussions of a bill. In 2019, under President Donald Trump, the institute told the then-members of the Senate and House Judiciary Committees, “We see this legislation as creating significant detrimental exposure to U.S. diplomatic, military and business interests while having limited impact on the market concerns driving the legislation.”

“The legislation threatens serious, unintended consequences for the U.S. natural gas and oil industry,” and it “represents a political act aimed at removing a sovereign nation’s litigation immunity from certain U.S. laws and opens the opportunity for reciprocal or even additional action on the part of those impacted countries,” the API said more than two years ago.

Last week, the U.S. Chamber of Commerce addressed the Senate Committee on the Judiciary, saying it opposes the bill known as S. 977.

“Although S. 977 is intended to be limited to restraint of trade in oil, natural gas or petroleum products, the Committee should be wary of the precedent it would create. Once sovereign immunity has been eliminated for one action of a state or its agents, it can be eliminated for all state actions and the actions of agents of the state,” the Chamber of Commerce said.

“Under reciprocal legal regimes, the United States and its agents throughout the world could be tried before foreign courts – perhaps including the military – for any activity that the foreign state wishes to make an offense,” it added.

Recession Fears Loom Large Over Bullish Oil Market

  • Oil markets remain highly volatile amid inflation fears, fed tightening and concerns about China’s economy.
  • Standard Chartered: EIA, IEA and OPEC are likely to cut oil demand forecasts in May.
  • Possible EU embargo on Russian crude continues to be highly bullish for oil

The price of gasoline in the U.S. hit an all-time high on Tuesday as the national average spiked $0.17/gallon from last week to $4.37/gallon, topping the previous all-time high set March 8. The European Union’s discussion of pulling back from buying Russian oil has sent additional shock waves through an already strained oil market, with the imbalance between supply and demand likely to get worse as more countries follow the U.S. in banning Russian oil. In sharp contrast, the crude markets have been incredibly volatile and full of wild gyrations.

So far, energy investors have been largely spared from the broader equity market selloff, with the sector emerging as the best performer amongst the 11 U.S. market sectors.  But the bulls recently faced their first major scare in months.

Monday was a very rough day for the U.S. stock market as concerns over China’s economy, oil demand, Fed tightening, and inflation triggered one of the worst trading sessions of the year, with the S&P 500 falling 3.2%. The energy sector fared even worse, with the broad index of energy stocks Energy Select Sector SPDR ETF (XLE) falling by 8.3% on Monday, on pace for its worst trading day of the year and weakest performance since falling 9.4% on June 11th 2020.

On Tuesday, crude oil fell below $100 per barrel Tuesday, down ~3% on the day, and back to levels last seen in April. Fearing the worst, several producers anticipated production cuts during Q2, including ConocoPhillips (NYSE:COP), Chevron (NYSE:CVX), BP Inc.(NYSE:BP), Shell (NYSE:SHEL), W&T Offshore (NYSE:WTI), Pioneer Natural Resources (NYSE:PXD), Diamondback Energy (NASDAQ:FANG) and Hess Corp (NYSE:HES).

Related: Gazprom Claims It’s “Technically Impossible” To Reroute Gas To Europe
But the markets bounced back on Wednesday: Brent Crude was trading at $106.20/bbl at 10.45 am ET, good for a 3.7% gain, while WTI was changing hands at $104.00/bbl, a 4.3% jump.

Once again, the bulls appear to be back in control thanks to growing fears of a Russian oil embargo by the EU as well as China’s economic stimulus. According to Chinese Premier Li Keqiang, Beijing will roll out an array of policies aimed at kick-starting China’s economy this year, including a tax-cut stimulus package of “no less than 2.5 trillion yuan ($400 billion). At the same time we are prepared to roll out a series of financial and pro-job policies”.

However, some market experts are warning that the oil markets are not out of the woods yet.

Recession Fears Could Cap Oil Price Gains

According to commodity analysts at Standard Chartered, whereas oil prices have tumbled from their recent intra-week highs, the w/w price fall is actually relatively modest compared to the falls seen in other commodities, particularly base metals and iron ore. This suggests that oil could decouple from industrial metals and remain elevated above USD 100/bbl, even in the face of growing fears of a recession in the U.S. and Europe as well as a sharp slowdown in China.

StanChart notes that oil prices have not been particularly recession-proof in the past except when (as in the 1970s) the recession was primarily caused by oil prices. However, the increased influence of top-down macro-led money funds in the oil market in recent years has made the oil markets even more sensitive than before to general macro sentiment.

According to commodity analysts at Standard Chartered, crude oil prices would still be well below USD 100/bbl if Russia had not invaded Ukraine, with the war responsible for adding ~USD 20/bbl. The key issue is then to what extent the disruption of Russian oil flows could offset the adoption of a more cautious risk-off mood across asset markets over the next few months.

Related: Record High Diesel Prices Will Ripple Across The Economy

“Individual EU country actions are likely to keep flows from Russia low and the countries asking for exemptions are relatively small consumers. Further, if sanction packages were to be weakened significantly, alternative mechanisms such as a tariff or a minimum price for Russian oil would keep the flow suppressed. A more significant threat to prices would emerge if market consensus became concerned that, while inventories are chronically low and there are significant dislocations in key oil product markets, the crude oil market would be relatively balanced in terms of supply and demand flows even if Russian exports fell sharply,” StanChart has said in its latest commodity report.

StanChart has warned that this week’s release of monthly reports by the main international and national oil balance forecasters is likely to move consensus towards deeper concerns on demand weakness and short-term oversupply.

The International Energy Agency (IEA) report is due for release on 12th May, the OPEC Secretariat report is due the same day, and the Energy Information Administration (EIA) ‘s STEO report was published on 10 May. The IEA’s April report put the q/q reduction in Russian output in Q2 at 2.34 million barrels per day (mb/d), with a further 380,000 bpd q/q decline taking output down to 8.65mb/d in Q3. The commodity experts say that due to the current lack of EU consensus, there is a risk that the IEA will spread the decline in Russian output over a longer period, thus loosening the implied short-term balance.

The other key downside risk that might arise from the monthly reports is further significant downgrades to 2022 demand growth forecasts. StanChart’s 2022 forecast of global oil demand growth currently stands at 1.078mb/d, about 360,000 bpd weaker than a month ago. The April reports from the key agencies all showed significantly higher demand growth than Standard Chartered forecast: the IEA forecast was 1.87mb/d, the EIA forecast was 2.41mb/d, and the OPEC forecast was 3.67mb/d.

StanChart has predicted that all three agencies will cut their demand growth estimates in their May reports.

Maybe there’s a reason to be cautious, as StanChart admonishes.

The American Petroleum Institute “API” latest data on crude inventories was bearish, with inventories increasing by 1.6mb, relative to the Department of Energy’s expectation for a draw of 0.5mb on the week. Then, on Wednesday, the EIA recorded a crude oil inventory rise of 8.5 million barrels in the week to May 6, compared with a build of 1.3 million barrels for the previous week, causing oil prices to slip slightly in the immediate aftermath.