What is the Chance of NOPEC Succeeding?

The latest NOPEC legislation is unlikely to become law, according to Joseph Gatdula, the head of oil and gas at Fitch Solutions.

“With the industry firmly against the changes, it is unlikely to garner enough votes to pass, and it remains unclear as to what the Biden administration’s position is on the issue, which will require presidential approval to pass into law,” Gatdula told Rigzone.

“On top of that, the enactment of NOPEC would likely squander efforts from the U.S. to improve relations with Saudi Arabia,” he added.

Gatdula admitted that efforts to pass the bipartisan NOPEC legislation in both the Senate and House had renewed in recent months as oil prices remain high and gasoline prices had risen to record levels. He added, however, that some form of an anti-OPEC legislation has been discussed as a solution to surging fuel prices by the U.S. Congress on multiple occasions over the last decades but said this has never gained sufficient support to be enacted.

When asked by Rigzone if the latest NOPEC legislation had any legs, Matthew Bey, a senior global analyst at RANE, said, “President Biden is trying to improve relations with Saudi Arabia and the rest of the GCC and is unlikely to support the NOPEC legislation if it gets to his desk”.

“Support of NOPEC would cause significant damage to the U.S.-Saudi Arabia relationship, which would be a liability to the United States as nuclear negotiations with Iran on life-support,” Bey added.

In a recent letter to U.S. Senators Richard Durbin and Chuck Grassley, the American Petroleum Institute (API) President and CEO Mike Sommers noted that the industry group opposes the Senate NOPEC legislation (S.977).

At the time of writing, S.977 still needs to pass the senate, pass the house, and go to the president before becoming law, according to the Congress website. The S.977 bill, which is available to see on the Congress site, aims to “amend the Sherman Act to make oil-producing and exporting cartels illegal”.

What Would Happen If NOPEC Succeeded?

The market would likely be left in uncertainty if the bill were to be passed, as the magnitude of financial impacts could be substantial, leading to more punitive actions against U.S. oil companies’ interests held in OPEC+ member countries, Gatdula noted.

“A finding of collusion against OPEC or OPEC+ members could see fines under federal law, of ‘twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million’,” Gatdula stated.

“This substantial penalty could see a rise in tit-for-tat actions against foreign-held assets in OPEC member countries. Rather than lower oil prices, this could have a chilling effect on upstream investment on both IOCs and sovereign entities, reducing future supply and leading to continued market tightness and higher oil prices,” he added.

“The near-term passage of the bill would have little effect on U.S. gasoline prices, as a significant portion of price growth has come from massive refiner margins, which have ballooned as fuel stock remain low and refinery output remains near capacity, highlighting a severe disconnect between fuel supply and demand,” Gatdula went on to say.

OPEC+ concluded its 28th OPEC and non-OPEC Ministerial Meeting earlier this month via videoconference. The group - which includes producing countries such as Saudi Arabia, Russia, Iraq, UAE and Kazakhstan - is scheduled to hold its next meeting in June.

To contact the author, email andreas.exarheas@rigzone.com