Editor's Note: This is a complimentary research note written by Hedgeye Energy Policy analyst Joe McMonigle. For information on our institutional research email sales@hedgeye.com.
The NOPEC bill has no momentum. Despite the sponsors of the NOPEC bill understandably pushing its legislation last week in the wake of the recent OPEC cuts, there is no urgency for Congress to act. Since the House Judiciary Committee passed the NOPEC bill out of committee in June, oil prices have declined by nearly 40 percent at current prices today.
The so-called NOPEC legislation would remove sovereign immunity for OPEC members from US anti-trust enforcement by the US Department of Justice. There are certainly legal and constitutional questions about the legislation but this note is not about that. The bill was introduced in both the House and Senate but has only advance in the House, where it was voted out of committee by the Judiciary Committee in June when Brent oil prices were approaching $85.
Last week, the House Judiciary Committee held a hearing on general anti-trust issues with the section-chief of the Justice Department. The sponsors of the NOPEC bill used the hearing to push their bill and criticize OPEC’s decision to cut production in early December. They are hoping to get the bill passed on a fast-track basis or attached to some year-end vehicle.
The effort has attracted predictable headlines and press attention prompting questions from clients. We wrote about the NOPEC bill earlier in the fall and predicted it did not have legs to get across the finish line. Since then, our rationale for NO NOPEC has only gotten stronger.
The biggest reason is oil prices, which are down nearly 40 percent since October. Ironically, prices are lower now than before the OPEC meeting decision to cut production on December 7. It’s hard to criticize OPEC for lower oil prices.
Moreover, gasoline prices, the real gauge for political action in the US, are below $2 in at least one station in 27 states, according to GasBuddy.com. EIA said this week that the US average price for regular grade gasoline on 12/17/18 was $2.369/gallon, down 5.2 cents from 12/10/18 and down 8.1 cents from a year ago.
Another reason is that President Trump, despite his criticism and book writing about OPEC, is not on board with the NOPEC legislation. The bill’s sponsors have tried to get Trump’s support but the President has resisted.
Saudi Arabia has the most to lose if the NOPEC bill were to become law with its big Motiva refinery and other US assets. As a result, we think Trump, like past US Presidents, oppose the legislation in order to preserve the strategic relationship with the Saudis and other Gulf allies. Certainly Trump is a wildcard, but he has doubled-down and is even more committed to the Saudi relationship than his predecessors.
For proof of Trump’s lack of support, you only need to look at the House Judiciary Committee. The anti-trust chief at the Justice Department testified that the administration is still studying the legislation, even though as private sector attorney he supported the bill in the past. That tells me the White House is not on board.
Lastly, we are in a new era in the US with the nation now one of the world’s top oil producer and a energy sector that is driving economic growth and job creation. Higher prices are healthy for this growing industry. If you are a House member from Texas, Oklahoma, Colorado or North Dakota, low oil prices are not a welcome development for your local economy and jobs -- so we doubt they would get on board with the NOPEC legislation.
