Imagine a world without OPEC

Imagine a world without OPEC. This is what the authors of the laws presented in both houses of Congress seem to want. The versions of the Prohibition Act to Produce and Export Petroleum Products, or the NOPEC Bill, go through the Senate and the House of Representatives and will likely find more support from the White House that in the past … Presidents George W. Bush and Barack Obama both threatened to veto a similar law

The bill would allow the United States to impose antitrust laws to OPEC members who "use production quotas to maintain artificially high oil prices". This is a popular argument in a country where the right to cheap gasoline could have been inscribed in the Constitution at the same time as the right to bear arms, if this document had been written a few hundred years ago. 39 years later. But we must look a little further than the forecourt of the gas station. And when we do, we will not look at the promised land.

OPEC introduced production quotas in 1982 to divide production between member countries facing a third year of declining global oil demand and an increase in the supply of countries such as oil and gas. Mexico and India. capacity. Saudi Arabia had already reduced its oil production by 30 per cent and, as in 2016, was no longer willing to badume the burden of balancing supply and demand alone. the demand for oil.

Making Space

The 1980s and 1990s gave way to a growth in non-OPEC production

What would have happened if OPEC did not? had not been reunited? Of course, drivers in America and elsewhere would have appreciated cheaper gasoline for a while. But probably not too long. Even with the group's supply management, oil prices reached a low of about 14 dollars a barrel in 1986, according to BP Plc data.

How much further would it have fallen if member countries continued to produce without restraint? Certainly low enough to make production unprofitable in Alaska, in the Gulf of Mexico, in the North Sea, in Western Canada and in a host of other oil provinces that have become the mainstays of production non-OPEC. The group's supply management has created space for an additional 33 billion barrels of non-OPEC production over the 20 years it took to bring their supply back to the 1978 level. [19659008] But nearly 40 years later, the world a different place. This is what would happen if the NOPEC bill became law and the group did not protect itself from its scope. It would be the world without the OPEC.

There could be no collective action to try to balance the supply and demand of oil. Saudi Arabia has repeatedly stated that it would fail to balance the market by itself and that it would support high-cost oil producers.

You do not have to look too far to see what this means in practice. Just think back four years, at the height of OPEC's willful pumping policy. Oil prices dropped to $ 26 a barrel – ideal for drivers, but not as good for US oil, or for investment in future generating capacity needed to offset the natural decline of existing fields. The end of the restriction of production in Saudi Arabia had a devastating impact on the American oil sector

Note: The two series of data are relative to August 2014, when there were 1,575 platoons active petroleum forms in the United States. 9.6 million barrels a day

As Saudi Arabia increased production, the number of oil rig drills in the United States fell by 80%. The only region in the world where drilling has not declined was the Middle East. It was not long before calls, including Trump's energy advisor, to OPEC to take action to reduce supply and save prices that were too low for the US industry. shale.

for any person to hold an alternative production capacity. In recent decades, this will has been an important safety valve to ease the pressure of supply disruptions. A study by the King Abdullah Oil and Gas Research and Development Center, launched in 2016, estimated between $ 170 billion and $ 200 billion in annual economic benefits from OPEC's additional production capacity through the reduction price volatility during a supply disruption. According to the study, the price of oil could have exceeded $ 300 a barrel during the Libyan revolution.

The largest oil stock held by consumers – the US Strategic Petroleum Reserve – could not cope with the loss of supply In 1990, Iraq invaded Kuwait and would have struggled to make up for the loss of Libyan production in 2011 for more than five months. The loss of supply that could result from the resumption of Trump's sanctions against Iran would exceed the capacity of the reserve to be delivered within four months.

Insufficient Petroleum Reserve

After three months, the SPR would not have been able to cope with the loss of oil supply from the invasion of Kuwait by Iraq in 1990. After four months, he will not be able to withstand the losses of sanctions against Iran

It seems perverse to attack the 'l'. President Trump's ally against Iran and the only source of unused capacity in the world, while initiating the biggest break in supply in nearly 30 years. But attacking allies and destabilizing markets seems to be a favorite pastime in Washington these days.