An OPEC-Free World

A group of stakeholders are lobbying in both houses of the US Congress for a bill that will enforce the country’s antitrust laws against The Organization of the Petroleum Exporting Countries (OPEC).

Variations of that No Oil Producing and Exporting Cartels Act have roamed the US legislative system during George W. Bush and Barack Obama eras. but both presidents would be ready to use the veto against them.

With a new nationalist administration. such bill could be passed. which could end the presence of OPEC. according to a report conducted by Bloomberg.

But. what would be the implications of such a radical outcome?

To answer this question. we need to fully grasp OPEC`s role in the global oil market.

In 1982. OPEC set production quotas to organize the market. following a third successive year of declined demand and the rise of supply by a host of countries including Mexico and India.

Without such restraint on production. oil might have been reached very low price levels. disheartening producers in Alaska. the Gulf of Mexico. the North Sea. Western Canada. and other areas worldwide. who would find that oil output has become “uneconomic“. the report remarked.

Moreover. Saudi Arabia. which usually acts as a buffer that protects the stability of the market. as manifested in the shortages created due to wars in both Iraq and Libya. would not find any incentive to play such role in a world without OPEC.  

OPEC – led by Saudis – takes several measures to avoid any drop in prices. which tumbled to $26 per barrel during the pump-at-will policy. threatening the future of the whole industry.

“As Saudi Arabia raised its production. the number of rigs drilling for oil in the US fell by 80%. It was not long before there were calls to act to reduce supply and rescue prices that were too low for the American shale industry.“

According to a study by the King Abdullah Petroleum Studies and Research Center. OPEC members’ spare production was an “important safety valve“ that has protected the market during shortfalls in production.

OPEC`s spare production capacity added between $170 billion and $200 billion to the global economy in the times of supply disruption. the study revealed.

With the irrational attack against Saudi Arabia. the world`s biggest producers. in the US and the proposed bill that would destabilize the market. the global oil market may hit by the toughest shockwave it has ever faced.

 

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