US to extend its jurisdiction over world oil market / News / News agency Inforos
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US to extend its jurisdiction over world oil market

New price shocks possible

25.03.2019 17:53 Alexander Pasechnik, head of the analytical department of the National Energy Security Fund

US to extend its jurisdiction over world oil market
Context:

The discussion of the NOPEC (No Oil Producing and Exporting Cartels Act) anti-cartel draft law by American congressmen has seriously rattled OPEC representatives.

The NOPEC bill is set to authorize US courts to consider antitrust claims against OPEC countries and other states participating in cartel agreements on the oil market. That said, joint actions of other countries’ governments aimed at limiting crude production and price pegging may be recognized as illegal.

Which is, in fact, what OPEC is engaged in.

OPEC Secretary General Mohammad Barkindo told a briefing at the industry-specific conference CERAWeek in Houston that OPEC is keeping a close eye on the law making in the Congress. “We are fully aware of consequences. The legislation as it stands would not serve the interests of the United States, and the interests of the industry overall,” Barkindo said, noting that the responsibility not only for the American, but also for the global market is at stake.

Energy Minister of the United Arab Emirates Suhail Al-Mazrouei shares the OPEC boss’ view. He has complained that OPEC’s work will be paralyzed if the anti-cartel bill NOPEC is passed. Al-Mazrouei told that to a group of American bankers and investors at a hushed meeting within CERAWeek. He explained that if NOPEC is signed into law each OPEC member-state will start raising its production plateau, which will be followed by an oil price crash.

Large market players are also concerned about the anti-cartel draft of legislation. For example, Chief Executive Officer of the British BP Group Bob Dudley said that if adopted the NOPEC bill will have “unpredictable consequences” for the market. He believes that the possibility of legal actions to be initiated against oil-exporting countries can “completely disrupt the world economy.” The top manager views the regulating function of OPEC as advantageous for the oil market, not damaging.

Meanwhile, the Minister of Energy, Industry and Mineral Resources of Saudi Arabia Khalid Al-Falih has demonstrated diplomatic skills in his public commentaries on the NOPEC bill: “The US legislation is in the hands of US legislators, we have no impact on it, they are to decide. We will abide by what they decide. We in Saudi Arabia always abide by all international laws of the countries, in which we have business operations. We have always abided and will be abiding,” the minister said.

A reserved stance like that of Riyadh on potential threats to OPEC from Washington’s side is a loud political accompaniment to American authorities. Despite the fact that Saudi Arabia is the key beneficiary of the OPEC+ deal.

Interestingly, the American establishment has no common line on the views regarding NOPEC – specifically, US President Donald Trump provides no comments on that initiative of the Congress at all, though he always eagerly discusses publicly the situation on the ‘black gold’ market and criticizes OPEC’s activities. Whereas US Energy Secretary Rick Perry has repeatedly warned congressmen against taking rash decisions, noting that if passed the bill may substantially unbalance the oil market and trigger price shocks.

Whether the US authorities need cheap oil is not yet clear to themselves. So far Trump has confined himself mainly to tweets criticizing OPEC and consistently urging the cartel publicly to reduce the barrel price. His vague messages containing strong recommendations to OPEC to stop the mess on the ‘black gold’ market can sometimes be read on Twitter as well.

On the other hand, Trump has amped up the stakes regarding promotion of the strategy of the US’ global energy supremacy. For which exponential growth of national liquid hydrocarbons production is basically required. But a high stock exchange price of the barrel is necessary for boosting shale oil production further on in North America. Here the US’ sanctions wars against Iran and Venezuela are precisely for the scenario implying the rise in barrel price too.

While Washington is having apparent problems with sorting out strategic priorities for the development of the world oil market, on OPEC’s side a new horizon is being defined – on March 18 the cartel cancelled a meeting within the OPEC+ framework planned for April. Whereas the production cap agreed by partners in December appears to stay in force in the default mode until July.

Meanwhile, the decision on targeted production volumes of OPEC+ for the second half of 2019 will be made in May or June. The stocks positively responded to the news as on March 19 the price of one barrel of Brent crude oil soared above $68 – the landmark unseen by stock-jobbers since last November.

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