Analysts expect Congressional action on NOPEC bill

Odds are strong that the US Congress will pass a NOPEC bill for antitrust prosecution of members of OPEC, said analysts at Friedman, Billings, Ramsey & Co.

By OGJ editors
HOUSTON, June 12 -- Odds are strong that the US Congress will pass a NOPEC bill (No Oil Producing and Exporting Cartels) for antitrust prosecution of members of the Organization of Petroleum Exporting Countries, said analysts at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va.

"Windfall profits taxes or redistributive taxation schemes directed at integrated oil companies remain untenable as long as Congress must override a presidential veto," the analysts said June 12. However, they noted, "This could change" if Sen. Barak Obama (D-Ill.) wins the presidency.

They said: "The most visible Congressional efforts during the next several weeks, however, are likely to be directed at commodity investors themselves, a trend that began gathering momentum in April. Hearings are scheduled in the Senate Agriculture and Appropriations Committees on June 17 and the House Energy and Commerce Committee on June 23. The first step is likely to be enactment of a law to assess the impact of speculation on oil and food prices, possibly within weeks."

FBR analysts said, "While a bill to assess impact may sound weak, investors should not ignore the political momentum building behind high oil prices. Politicians at both ends of the spectrum have skin in the game, not only because energy prices and consumer well-being affects reelection prospects in economically vulnerable states and districts but also because a growing number of lawmakers recognize the need to vigilantly defend against market manipulation now that Congress is on the cusp of defining the world's largest, most liquid commodity market: the market for the permission to emit greenhouse gases."

Legislation that would redefine market governance and noncommercial participation or further increases the Commodity Futures Trading Commission regulatory obligations remains unlikely before 2009, they said. However, the analysts said, "We look to the precedent set by the Strategic Petroleum Reserve fill issue, when lawmakers from both parties quickly sensed the changing political winds and abandoned their principled opposition in favor of political correctness and pragmatism. Thus, we would suggest that any tangible proof of market manipulation or collusive behavior is likely to provoke a similarly sweeping response, particularly in the wake of recent Congressional concerns related to electricity, equity securities (remember Sarbanes-Oxley?), natural gas, and mortgages."

They said: "The range of potential actions includes increasing regulatory authority of, and budget for, the CFTC to allow interagency coordination, including work with the UK Financial Services Authority (growing momentum); requiring higher margins for crude oil trades (growing support); imposition of position limits on noncommercial trades through swaps dealers (growing momentum); imposing strict limits, or potentially prohibitions, on oil futures investment by sovereign wealth funds and their institutional investor partners (unlikely); examining potential conflicts of interest between research analysts who assess oil market conditions and institutional investors who buy oil futures (likely); barring further investment in oil by institutional investors (early stages of support); preventing the federal government from buying oil in markets mediated by noncommercial traders (unlikely); and limiting the ownership of energy infrastructure by financial investors (unlikely in the absence of a smoking gun)."

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