US politicians urge action to curb OPEC influence as production cuts loom

The consortium of oil-producing nations known as OPEC-plus has spurred rare bipartisanship in the US capital after the cartel said it would cut crude production.

The group said last week that its decision to cut production by 2 million barrels a day in November was a response to headwinds from the global recession and threats to demand. But Washington lawmakers on both sides of the political aisle called the move an effort to prop up prices — and profits — by unbalancing supply and demand with a quick and steep cut.

US politicians have also called the production cut a step towards strengthening Russia’s energy complex as the Kremlin wages war on Ukraine – a conflict the US opposes. OPEC-plus is led by Saudi Arabia and Russia. Vladimir Putin, Russian President, said on Monday that the Kremlin had launched a multipronged attack on Ukraine, including new bomb attacks on its capital.

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The potential answer? Reviving the No Oil Producing and Exporting Cartels Act, aka NOPEC, which would empower the US Attorney General to sue OPEC members under the Sherman Antitrust Act for using anti-competitive measures to prop up global oil prices oil.

International benchmark Brent crude prices rallied on OPEC-plus news, rising more than 10% in the past week.

The bill could give the Biden administration “an option rather than an obligation to bring an action in US courts against the producer group and/or its members. In theory, however, signs of the administration’s intention to use the new powers NOPEC would confer – a dramatic intervention – could lead OPEC-plus to reconsider and potentially abandon its “market balancing” role. “said analysts at ClearView Energy Partners LLC.

NOPEC would “crack down” on cartel price-fixing, the Republican senator said. Chuck Grassley from Iowa said. “Our energy supply is a matter of national security.”

Senate Majority Leader Chuck Schumer, a Democrat from New York, said NOPEC would be given serious consideration.

“What Saudi Arabia did to help Putin continue to wage his vile, vicious war against Ukraine will long be remembered by Americans,” Schumer told reporters. “We are reviewing all legislative tools to best deal with this appalling and deeply cynical action, including the NOPEC bill.”

Biden reversing the course?

The House Judiciary Committee passed the NOPEC legislation in May; its counterpart committee in the Senate approved a similar bill in April. At the time, President Biden threatened to veto the legislation, following similar wishes from several predecessors for comparable legislation in the past. Presidents have long sought to maintain diplomatic relations with Saudi Arabia, given its history of outsized influence in global energy markets.

However, the Biden administration last week criticized the OPEC-plus production cut, saying it would threaten supply, spur further inflationary pressures and increase the likelihood of the global economy tipping into recession. . The US president had pressured Saudi Arabia to maintain or even increase production to keep downward pressure on oil prices.

The White House has said it will order additional releases from the country’s Strategic Petroleum Reserve (SPR) “if necessary”, reversing a plan to end SPR drawdowns next month. Top Biden aides also said in a written statement that the White House would “consult with Congress on additional tools and authorities” to limit OPEC’s “control” over crude prices. Analysts have widely considered that statement National Security Advisor Jake Sullivan and National Economic Council Chairman Brian Deese as a signal that Biden might drop his opposition to NOPEC.

“Yes, ‘tools and authorities’ could refer to other powers that Congress might confer, such as the ability to require U.S. refiners and/or fuel distributors to meet minimum inventory requirements, or a explicit authority to limit gasoline and diesel fuel export volumes,” the ClearView team said. “But only one tool to reduce OPEC scrutiny has already authorized both jurisdictional committees: NOPEC. “

Ben Cahill, senior fellow at the Center for Strategic and International Studies, said Biden’s apparent reconsideration of NOPEC follows years of frayed relations with the Saudis, spanning both the Democratic and Republican administrations in Washington.

“In many ways, this decision crystalizes the changes that have emerged over the past decade,” Cahill said. “The United States is now the largest oil producer in the world, and a Washington less dependent on imports is exerting influence on the oil market in ways that could harm the interests of major exporters. OPEC-plus is betting the U.S. is overplaying its game.”

Price pressure

Meanwhile, crude prices are on the rise. Brent hovered around $97 a barrel on Monday, down from $88 at the start of the month.

Goldman Sachs analysts on Thursday raised their forecast price for the first quarter of 2023 by $10 to $115/bbl and said they “recognize that the price risks are potentially even higher.”

If full OPEC-plus cuts are achieved and sustained through next year, Goldman’s team said, this “would represent an upside of $25/bbl from our previous Brent forecast of 107 $.5/barrel for 2023, with the potential for an even higher price spike if inventories completely run out. .”

Rystad Energy expects Brent prices to top $100 in the current quarter.

“We believe the price impact of the announced measures will be significant,” said Rystad analyst Jorge Leon. He said higher prices could motivate an increase in US production, although that could take weeks to materialize and US supplies could be under pressure in the meantime.

U.S. exploration and production companies could increase output to 12.7 million bpd by the end of the year, Leon said. That would mark a jump of 700,000 bpd from September levels and bring production within striking distance of the all-time high of 13.1m bpd reached in March 2020, before the pandemic.

At the end of September, however, U.S. commercial crude inventories, excluding those at the SPR, stood at 429.2 million barrels, 3% below the five-year average.

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