Oil in Global Economy Series: U.S. ‘NOPEC’ legislation to threaten OPEC deal

Dark clouds gathering over the newly reached production cuts agreement reached between the Saudi Arabia-led Organization of Petroleum Exporting Countries (OPEC) and Russia-led several non-OPEC countries.

• In November last year, OPEC and non-OPEC countries reached an agreement to reduce global production by 1.2 million barrels per day beginning January 2019 to reign on lower oil price.
• Last Thursday, the Judiciary Committee in the United States’ House of Representatives passed a bill that would allow the U.S. Justice Department to sue members of OPEC for manipulating the oil market.
• This is not a new bill and has already been tried to pass during previous administration but ultimately failed as Presidents from both parties and several key lawmakers were opposed to it, as it might have damaged the relationship between the United States and Saudi Arabia, one of USA’s most important allies in the Middle East.

But, time seems to have changed.

• In the current context, the bill has a very high probability of passing through both chambers of the U.S. Congress and land up in the President’s desk.
• In the past, Saudi Arabia has enjoyed support from many U.S. lawmakers but the country has drawn ire of U.S. lawmakers over the murder of journalist Jamal Khashoggi, who was brutally killed at the Saudi Consulate in Istanbul. Saudi crown prince Muhammad bin Salman was allegedly involved in the Journalist’s murder, who has been a fierce critic of the crown prince and the Al-Saud family through his column in Washington Post. After initial denial and weeks of drama, Saudi Arabia had to finally admit that the murder was pre-meditated.
• President Trump himself is likely to sign the bill into law should it reach his desk as he has long been a critic of OPEC’s manipulation of oil price by means of production cuts.

WTI is currently trading at $52.6 per barrel, and Brent at $9.2 per barrel premium.