U.S. Antitrust Law Could Break OPEC's Collusion On Oil Production Deals

May 26, 2018 11:19 AM ETUSO, OIL-OLD, UCO, SCO, BNO, DBO, DTO, USL, DNO, OLO-OLD, SZOXF, OLEM, OILK, OILX82 Comments

Summary

  • NOPEC bill would end immunity by sovereign governments to the Sherman Act.
  • American antitrust law would apply to OPEC + friends.
  • President Trump is no friend of OPEC, but the Saudi relationship is important.
  • If NOPEC becomes law, OPEC's collusion would disappear.
  • Supply would exceed demand, and oil prices would drop.

U.S. gasoline consumers are in for “sticker shock” when they fill their tanks to begin this summer's gasoline season. The U.S. average price for regular gasoline is up $0.52/gal from last year in the latest DOE survey.

Out here in Southern California, we are already paying $4+/gallon for premium in my community. Doubt it will affect driving habits here, but around the globe, higher prices will dent oil consumption growth, at least a little, maybe more than that.

OPEC’s production deals, coupled with geopolitical issues, have caused oil prices to rise unexpectedly fast, even in the eyes of those colluding. A month ago, President Trump tweeted that OPEC is causing oil prices to be "artificially high," referring to OPEC's collusion, as defined under America's antitrust laws.

Saudi Arabia and Russia signaled their intention to increase production in a turnabout today. KSA's decision is clearly part of the bilateral negotiations regarding Iran, though a factor could be KSA is reportedly worried about facing American antitrust laws, if a Congressional bill is passed and signed into law by the president.

President Putin is more concerned that high oil prices are bad for consumers and encourage competitors to take market share. And so the Russians would rather have a lower price around $60/b (Brent, means WTI about $55).

NOPEC

Congress has revived a bill dating back to over a decade that would punish oil cartels that collude on production under the Sherman Act. In the past, courts have decided to give sovereign governments immunity under the Act. The No Oil Producing and Exporting Cartels Act (H.R. 5904 also known as NOPEC) would make OPEC subject to antitrust laws by removing a state immunity shield created by judicial precedent. The bill has bipartisan support.

In a press release dated May 24, the House Judiciary Committee

This article was written by

Robert Boslego profile picture
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Harvard College, Economics (Honors), BA

Undergraduate thesis: "OPEC Pricing Strategy."

Harvard Business School Case Study: "Industrialized World and Oil."

Stanford University Graduate School of Business, MBA


I founded Boslego Risk Services and became a recognized expert in the area of energy price risk management (hedging) and trading, providing oil and natural gas hedging strategies to major oil companies such as Exxon, Shell, Mobil, Chevron, Texaco and Phillips; to the national oil companies of Norway, Venezuela, Mexico, Canada, France and Italy; to major users of energy products, such as Delta Airlines, United Airlines, Burlington-Northern Railroad, and Canadian Pacific Railway.


I also provided frequent market assessments and recommended trading positions to major trading firms, such as Enron, Phibro, Sempra and Vitol, and to large hedge funds.


As the recognized expert in energy hedging, I was selected by the former president, John Treat, of the New York Mercantile Exchange (NYMEX) to write the chapter on hedging in his book, Energy Futures (1990, 2000).



Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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