Once again, misinformed US lawmakers want to authorize antitrust litigation against the Organization of Petroleum Exporting Countries.
When the first such legislation appeared in 2000, it represented an energy-policy analog to the classic military blunder of planning today’s battles to fight yesterday’s war.
By 2000, OPEC knew it could not levitate the price of crude oil without losing market share. Yet memories remained fresh of price leaps from supply disruption in the 1970s and OPEC’s experimentation with market power in the 1980s.
Since then, the market has changed. Someone should tell lawmakers supporting the 2019 No Oil Producing and Exporting Cartels Act (NOPEC) that the changes favor their country.
On Feb. 7, House Judiciary Committee Chairman Jerrold Nadler (D-NY) said OPEC members “deliberately collude to limit crude oil production as a means of fixing prices, unfairly driving up the price of crude oil.”
That statement would have resonated in 1975. Now, with US fuel prices comfortably low and the American producing industry resurgent, it thuds.
OPEC members face new competition, most of it from the US. The market usually can deliver more oil than it needs. Supply must be restrained.
The process can be chaotic and devastating to businesses and economies. Or it can be managed.
When OPEC abandoned supply management in 2014, the market lapsed into chaos. All producers suffered.
Coordination of supply restraint proved yet again to be a regrettable necessity—now aimed at preventing price swings that destroy demand, at one extreme, and production economics, at the other.
The task falls to producers free of antitrust liability controlling enough supply to make a difference.
Last year, crude prices rose over worry about supply. And Saudi Arabia and Russia raised output.
Their accommodation was rewarded by President Trump’s pre-election waiver of sanctions due against Iranian oil exports. Anticipated shortage gave way to physical surplus; the crude price slumped.
After that double cross, NOPEC’s motivating anxiety about manipulation of the market seems worse than antiquated and disengaged. It’s mistargeted.
(From the subscription area of www.ogj.com, posted Feb. 15, 2019. To comment, join the Commentary channel at www.ogj.com/oilandgascommunity.)