OPEC logo

Growing anti-OPEC movement is disastrous for oil markets | OilPrice.com

Earlier this year, Mario Draghi, then Italian Prime Minister, floated the idea of ​​big oil buyers banding together and standing up to OPEC+. The idea did not progress much beyond the floating stage because one obvious problem could not be ignored: OPEC would retaliate. Yet it seems that some ideas tend to be so appealing that they resurface, again and again, in slightly different forms. The idea of ​​an anti-OPEC buyers’ club has also surfaced, and not only that, but a NOPEC bill has been introduced in the Senate in the United States and, according to media coverage, has a chance of be adopted.

Some, however, went further than a bill. A Bloomberg columnist, Carl Pope, recently detailed his vision of an anti-OPEC grouping, which manages to combine the idea of ​​affordable oil and a push for the electrification of transportation. Again, the issues are too obvious to overlook.

For starters, Pope suggests that if the NOPEC bill is successful, the US could start punishing OPEC+ members with fines, import tariffs and even sanctions, as well as denying access to public financial markets to national oil companies such as Aramco and Rosneft. .

The message here seems to go along the lines of “It’ll show them”, but this message ignores the fact that firstly, Rosneft is already heavily sanctioned and cut off from Western financial markets, and secondly, Aramco is not exactly Chevron or Shell, and although he has recently exploited the markets on several occasions, it is debatable whether he is so dependent on external financing that he would suffer serious harm from such measures.

Related: Better-than-expected inflation data raises hope for oil markets

The other fact that Pope’s idea seems to ignore is that such punitive measures would essentially mean that OPEC+ oil would become more expensive for countries that employ these measures. All oil really becomes more expensive when sanctions or tariffs are introduced on a third of the world’s supply. Again, that wouldn’t be such bad news for oil sellers, including the United States, but it would certainly be bad news for buyers – again, including the United States.

The alternative to OPEC proposed by Bloomberg’s Pope is what he calls an organization for clean and affordable transportation. Pope says it should be made up of “responsible oil producers and consumers”. This means that the United States, Canada and Norway are on the producer side and just about everyone except OPEC+ on the consumer side. That’s not a lot of responsible producers.

The idea appears to follow the model of the so-called US-led friendship push in critical minerals. For now, the push is aimed at redesigning supply chains for the energy transition and reducing China’s overwhelming dominance in the extraction and processing of critical minerals. The idea, like Pope’s OCAT, is to rely on friendly producers of the raw materials needed for the transition. The problem, as with OCAT, is that these friendly producers can only provide a fraction of the supply needed for the transition.

The Washington administration likes to control all kinds of prices. He also enjoys controlling the oil supply, although he has so far failed to accomplish anything resembling controlling it, even at home, let alone OPEC+. Indeed, the American oil industry is completely against a NOPEC law because it knows how the oil market works.

As the president and CEO of industry lobby group the American Petroleum Institute said in comments on the latest developments around the NOPEC bill, it “would create further instability in the market and exacerbate existing challenges in international trade. Such legislation would be unnecessary under any past, present or future market condition.

The United States and the European Union, which the pope says should form the new anti-OPEC organization for clean and affordable transportation, have already made a big mistake with Russia. They assumed that whatever they throw at it in terms of sanctions and asset freezes, Russia will not retaliate because it needs Western markets.

Now, NOPEC proponents seem to be making the same dangerous assumption: that OPEC+ would not retaliate against punitive action from the West. And that the West can survive longer without OPEC+ oil than OPEC+ can survive without selling its oil to the West. As we can see from what has happened in Europe over the past few months, this is a very questionable assumption.

The hopes behind an anti-OPEC push are the hope for better control of the global oil market to avoid price spikes that hurt economies. The reality is that such control is impossible for a group of countries that includes just three respectably sized oil-producing states plus the UK – an oil powerhouse in decline thanks to government transition plans.

In any market, it’s not so much about who has the greatest demand who can move the market where it wants. It’s all about who represents the most supply. This is perhaps the best argument in favor of the energy transition and the electrification of transport, so it is a shame that China occupies such an important place in this department, just like Saudi Arabia, Russia and their OPEC+ friends are just as prominent in oil.

By Irina Slav for Oilprice.com

More reading on Oilprice.com:

#Growing #antiOPEC #movement #disastrous #oil #markets #OilPrice.com

Leave a Comment

Your email address will not be published. Required fields are marked *