Oil price spike puts Opec in the cross hairs of US policymakers
President Donald Trump will be holding a gun to Opec’s head if legislation is approved to potentially revoke the cartel’s immunity from prosecution in America for monopolistic practices. Republican senator Chuck Grassley this week introduced the so-called No Oil Producing and Exporting Cartels Act, which could allow the US Justice Department to sue the 15-member group for antitrust violations.
If passed, the bipartisan Bill, also known as Nopec, would give Trump unprecedented power to break what many in the US see as Opec’s grip over oil markets.
Although previous versions of the Nopec act have been tabled over the last 20 years, they have been ignored by successive presidents. The new legislation worries Opec insiders the most partly because of Trump’s readiness to single out the group for criticism since he came into office and launch trade wars regardless of the risks. Trump has repeatedly attacked Opec on Twitter for allegedly “fixing” oil markets and causing high gasoline prices in the US, while putting pressure on the cartel’s kingpin Saudi Arabia to increase supply.
Opec finds itself an easy political target for Trump and his allies in the US leading up to crucial midterm elections in November. Put simply, few domestic economic issues raise the hackles of American voters more than the surging cost of filling up their cars during the summer driving season.
Average gasoline prices have climbed by almost 30pc to $2.60 per gallon over the last year, according to the Energy Information Administration (EIA).
The rising cost of fuel has come amid a surge in crude prices after Opec and its oil producing allies reduced their supply of crude by 1.8m b/d to lower global stockpiles.
Despite efforts to water down their collaboration and release more oil last month, Trump and many US lawmakers have kept the cartel firmly in their cross hairs. “It’s long past time to put an end to illegal price fixing by Opec,” said Grassley in a statement this week after proposing the Bill.
“The oil cartel and its member countries need to know that we are committed to stopping their anticompetitive behaviour. We, in the United States, have been working for years to develop our domestic clean, renewable and alternative energy resources. We’re also committed to reducing our reliance on foreign oil, especially when it’s artificially and illegally priced. Our Bill shows the Opec members we will not tolerate their flagrant antitrust violations.”
All this sabre rattling at Opec comes at a time of surging domestic oil production in the US. Last week, output hit 11m b/d for the first time in history.
Meanwhile, US imports of crude from Opec countries have almost halved over the last decade, according to the EIA. However, in the eyes of lawmakers, Opec remains the prime culprit for higher gasoline prices for the world’s largest consumer of oil.
“In another time of rising gas prices, it is vital to American consumers and our economy that we do all we can to make sure that oil prices are not artificially inflated,” said Democrat senator Patrick Leahy, who is supporting the new Nopec Bill.
“High oil prices have a particular impact in rural states like Vermont, whether it is home heating oil, fuel for tractors or just driving to work. I have long supported this legislation because it will bring accountability to the types of collusive behaviour that spike the cost of gas at the pump.
“I hope this is finally the Congress where these critical reforms can be enacted into law.”
Of course, Vienna-based Opec isn’t going to accept the threat of a reprimand from the US without a fight. The group is considering its own legal counter should the legislation become law, according to a report by S&P Global Platts. The Bill is identical to legislation targeting the cartel proposed earlier this year and approved by the House judiciary committee. However, the impetus behind both measures could quickly slow down should gasoline prices ease as both Saudi Arabia and Russia open their production taps.
It could also backfire. US efforts to target Iran and Venezuela have so far only added to anxiety over global oil supplies. Unless around a million b/d of Iranian crude, which could disappear from the market following embargoes, is replaced then prices could remain stubbornly rooted above $70 per barrel. Suing Opec could also cause some awkward problems for America’s key allies in the Middle East, such as Saudi Arabia and the United Arab Emirates.
There are also signs Opec and its oil producing allies are listening to Trump’s gripes. Opec produced almost 32m b/d of crude in June, and Saudi pumped at an 18-month high near 10.4m b/d, according to the latest production survey by S&P Global Platts. Russian president Vladimir Putin – who sanctioned Moscow’s recent alliance with Opec – also pinpointed the need to co-operate with the US on oil matters during his meeting with Trump in Helsinki.
“I believe we as major oil and gas countries may work constructively to regulate international markets because we are interested neither in an extreme drop in prices – as our producers [including shale oil and gas producers in the US] will suffer – nor extremely high prices,” said Putin. Critics would argue such co-operation in itself would be un-american and an affront to the country’s principles of “laissez-faire” free market capitalism.
But if Trump really wishes to defend those values, then Nopec could give him all the ammo he needs.
‘Few issues raise the hackles of US voters more than the surging cost of filling up during the driving season’