Complex Made Simple

NOPEC: US effort to reign in OPEC dominance likely to fail

Oil prices have been on a rollercoaster ride, with Brent going to $80 in May, only to drop $8-9 to around $71-$72 in July.

Who or what is controlling prices?

Demand supply? Oil production disruption? Security crisis? OPEC?

The US claims OPEC has the biggest hand in controlling energy prices, and it is out to prove it in court.

Related: What is causing crude oil prices to cave in?

NOPEC is born

OPEC is consulting with lawyers to prepare a strategy to defend against proposed U.S. legislation that could open the cartel up to antitrust lawsuits, according to people familiar with the matter, as published by, and reported by Bloomberg.

“The organization’s legal team will hold talks in the coming days with law firms including White & Case about the “No Oil Producing and Exporting Cartels Act,” one of the people said, asking not to be identified because the information is not public.

The cartel is seeking strategy recommendations for dealing with the NOPEC bill, which could allow the U.S. government to sue it for manipulating energy prices, the person added.

US president Donald Trump could well be behind or very supportive of the effort having repeatedly criticized the group via Twitter, accusing it of inflating prices and urging it to increase production.

“Oil prices are too high, OPEC is at it again. Not good!”, one of Trumps many tweets said.

OPEC had announced it would add 1 million bpd of crude to the market.

Related: OPEC may not have a handle on oil prices: Supply leaks spring everywhere

Price and supplies

OPEC contributes one-third of global oil, adds or removes supplies in the market, which ultimately affect oil prices.

Since January 2017, OPEC and non-OPEC countries did manage to bring back supplies to 5-year averages having cut production by about 1.8 million barrels a day, and in the process helping lift prices to a three-year high of more than $80 a barrel in May.

These countries agreed in June to gradually bring compliance back to 100%.

Reuters revealed that these countries’ compliance with oil output curbs has declined to around 120% in June from 147% in May, two sources familiar with the matter told the media on Wednesday.

Compliance reached 181% in April 2018.

“The move is designed to add more barrels to the market and reduce upward pressure on oil prices after unexpected outages in Venezuela and Libya pushed compliance to record high levels,” said Reuters.

Oil prices rallied on Wednesday afternoon despite compliance falling, said

US WTI traded at $67.07, while Brent crude was trading down at $72.33.

Related: What the recent OPEC agreement to return to 100% compliance really means

OPEC to dominate future oil

OPEC will continue to play a key role in oil supply and prices in the global oil market through 2040.

“That’s the takeaway from Wood Mackenzie’s latest long-term outlook for global oil supply,” reports, an industry site.

“After the mid-2020s, OPEC’s role and importance on the oil market will become more prominent in ensuring upstream investment to meet global oil demand growth and offset declines from maturing assets,” WoodMac says.

“With demand continuing to grow through to its peak in the mid-2030s, the industry must find increasingly expensive oil to offset declines from a maturing asset base. To balance the market in the long-term, there is increasing reliance on OPEC continuing to exploit its available reserves,” according to the analysts.

U.S. onshore production won’t be able to meet global oil demand growth on its own, so conventional projects would need to step in to fill the supply gap, WoodMac reckons.

“EIA’s latest Short-Term Energy Outlook (STEO) from July expects total U.S. crude oil production to average 10.8 million bpd this year, up by 1.4 million bpd from last year. In 2019, U.S. crude oil production is forecast to average 11.8 million bpd,” said

By 2030, around 6 million bpd of oil supply—mostly yet-to-find, contingent resources and fringe plays in the U.S.—is expected to break even above $70 per barrel. By 2040, the volume of supply breaking even at above $70 a barrel could be as much as 11 million bpd, WoodMac says.

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