Shock OPEC-Plus Production Cut Galvanizes Fresh Support for Bill Targeting

The consortium of oil-producing countries known as OPEC-Plus spurred rare bipartisanship in the U.S. capital after the cartel said it would slash crude production.

The group said last week its decision to cut output by 2 million b/d in November was in response to global recessionary headwinds and threats to demand. But Washington lawmakers on both sides of the political aisle called the move an effort to bolster prices – and profits – by pushing supply/demand out of balance with a swift and steep reduction.

U.S.  politicians also called the production cut a step toward boosting Russia’s energy complex as the Kremlin wages war in Ukraine – a conflict the United States opposes. OPEC-plus is headed by Saudi Arabia and Russia. Vladimir Putin, Russia’s president, said Monday the Kremlin had launched a multipronged attack on Ukraine, including new bombing attacks on its capital city.

The potential response? Revive the No Oil Producing and Exporting Cartels Act, aka NOPEC, which would empower the U.S. Attorney General to sue OPEC members under the Sherman Antitrust Act for using anti-competitive measures to bolster global oil prices.

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

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

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

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

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

Biden Reversing Course?

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

However, the Biden administration last week criticized the OPEC-plus production cut, saying it would threaten supplies, stimulate fresh inflationary pressures and increase the likelihood the global economy could tilt into recession. The U.S. president had lobbied Saudi Arabia to maintain or even increase production to keep downward pressure on oil prices

The White House said it would order additional releases from the nation’s Strategic Petroleum Reserve (SPR) “as 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 widely viewed that statement from National Security Advisor Jake Sullivan and National Economic Council Chairman Brian Deese as a signal that Biden may abandon his opposition to NOPEC.

“Yes, ‘tools and authorities’ could refer to other powers Congress might confer, such as the ability to mandate that U.S. refiners and/or fuel distributors meet minimum stock requirements, or an explicit authority to limit export volumes of gasoline and diesel fuel,” the ClearView team said. “But only one tool for reducing OPEC control has already cleared both committees of jurisdiction: NOPEC.”

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

“In many ways, this decision crystallizes changes that have been emerging for the past decade,” Cahill said. “The United States is now the world’s largest oil producer, and a less import-dependent Washington is exerting influence in the oil market in ways that could harm the interests of the major exporters. OPEC-plus is betting that the United States is overplaying its hand.”

Price Pressure

Meanwhile, crude prices are up. Brent hovered around $97/bbl on Monday – up 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 “acknowledge price risks are skewed potentially even higher.”

If the full OPEC-plus cuts are realized and sustained through next year, the Goldman team said, it “would amount to $25/bbl upside from our previous 2023 $107.5/bbl Brent forecast, with potential for price spikes even higher should inventories fully deplete.”

Rystad Energy expects Brent prices to exceed $100 during the current quarter.

“We believe that the price impact of the announced measures will be significant,” said Rystad analyst Jorge Leon. He said higher prices could motivate increased U.S. production, though this could take weeks to materialize and American supplies could come under pressure in the meantime.

U.S. exploration and production companies could increase output to 12.7 million b/d by the end of the year, Leon said. That would mark a 700,000 b/d jump from September levels and bring production within striking distance of the record 13.1 million b/d level reached in March 2020, before the pandemic.

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


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