The energy elite are in Houston, Texas, this week for CeraWeek Ihs Markit, the industry’s biggest convention that starts today. “This is the first CeraWeek in which the biggest oil producer is the country hosting the conference, i.e. the United States of America”, noted Pulitzer prize winner Daniel Yergin, the founder and protagonist of the event, while the US is also preparing to wrest the record for exports from Riyadh. The rise of America as an oil and gas superpower, new technologies, the Venezuelan crisis and the Donald Trump factor will concentrate minds. The panel of speakers ranges from OPEC Secretary General Mohammad Barkindo to BP’s CEO Bob Dudley, from the chairman of Ford Motor, William Clay Ford Junior, to the CEO of Amazon Web Service (AWS), Andrew Jassy, from US Secretary of State Mike Pompeo to Energy Secretary, and former governor of Texas, Rick Perry.
The rise of the US
US oil and gas production has reached a record of 12.1 million barrels a day, eclipsing Russia and Saudi Arabia last year. Exports have exceeded 3 million barrels a day, overtaking those of many other OPEC countries. “Over the next 2 or 3 years, the US will become a net exporter. By the end of this year, the US will be producing 13 million barrels a day. A growth of this magnitude is a seismic event for the US economy. Oil production is two and half times higher than it was in 2008”, noted Yergin. The US shale boom has brought into question whether OPEC can still be considered the benchmark for the market, even pushing Russia to ally itself with Saudi Arabia and the other countries in the cartel to increase its weight. Then there is Trump who is talking to the Saudis, sanctioning Iran and Venezuela (both members of OPEC) and who, with his ‘interventionism’, according to experts, is contributing to strengthen the role of the US as a ‘swing producer’.
The Trump factor
When he announced sanctions against Iran last year for its nuclear program, US president Donald Trump said there would be no extensions, which made oil prices soar. Subsequently, however, he exempted eight countries, including Italy, authorizing them to buy oil from Tehran for six months and making prices drop. Iranian oil exports are around 1.1 million barrels a day, having fallen from 2.5 million last spring. The six-month exemption from Iranian sanctions granted to the eight countries is due to expire next May and if they are not renewed, Tehran's exports could be further reduced. “It will be an incredibly volatile market”, predicts Carlos Pascual, senior vice president of Ihs Markit. “In 2018, the price of Brent swung between 50 and 86 dollars a barrel, with an average of 70 dollars. There is a huge difference between 50 and 86 dollars – explains Pascual - everything changes depending on when you buy, the country and the situation.” Trump “appears to have gained a fair amount of influence over OPEC and the market is definitely beginning to fear the Trump effect,” underlines Francisco Blanch of Bank of America Merrill Lynch.
The spotlight is also shining on Venezuela at CERAWeek, which is due to hear, amongst others, from Luisa Palacios, chairman of Citgo, a US subsidiary of the Venezuelan state oil company PDVSA, one of the stakes in the power struggle between the president, Nicolas Maduro, the opposition leader, Juan Guaidó, who the US has recognized as head of State. Trump has sanctioned Venezuela for Maduro’s human rights violations and abuses of power. Venezuelan oil production is falling and some experts estimate it will stand at just 500,000 barrels a day by the end of the year.
The specter of ‘NOPEC'
While Trump has repeatedly attacked the OPEC cartel, accusing it of manipulating prices, the House Judiciary Committee, which has a Democratic majority, has approved the NOPEC (No Oil Producing and Exporting Cartels Act), which means the first legislative hurdle has been overcome by a law that could allow the US to sue the members of the organization representing the major exporting countries and claim billions of dollars in compensation for antitrust violations. The move stems from the intention to hit Venezuelan OPEC officials close to Maduro. The chances of it being approved “are very low”, warns Fitch Solutions in a report, “US production companies and States will object to it strongly because OPEC serves as a key buffer to lower prices and any removal of influence over prices would reduce profits.” “I don’t think it can work – agrees Yergin – without oil market stabilization mechanisms there would be much more volatility and therefore fewer investments.”