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OPEC to take a backseat in 2016 elections

OPEC to take a backseat in 2016 elections thumbnail

As candidates for the 2016 U.S. general election gear up for a White House run, one villain of recent campaign cycles will be conspicuously absent: the cartel known as OPEC.

With the U.S. oil boom helping the world’s largest economy churn out more than 9 million barrels per day (bpd), its highest in about three decades and up 80 percent since 2008, energy prices appear to be sidelined as political theater. Should current trends continue—prices of Brent crude and West Texas Intermediate are trading near their lowest levels in nearly 10 years—energy prices are unlikely to figure prominently in the coming presidential election.

Even as geopolitical risks in Iraq, Syria and Venezuela continue, national gas prices now hover in the $2.50 range, thanks in large measure to the U.S. oil bounty. That is a far cry from a few years ago, when average gas prices threatened $4 per gallon and oil was perched comfortably above $100.

Bob Dudley, CEO of BP, told CNBC on Tuesday at the IHS CERAWeek conference that oil is likely to remain “lower for longer. [I] don’t know how long … several years absolutely [is] a possibility.

Now that the U.S. is producing much of its own energy supplies, and with gas prices tame, the Organization of the Petroleum Exporting Countries won’t loom as the boogeyman it has in prior election years, when presidential contenders were forced to address how they’d confront petro-states over costly oil prices.

The ‘quiet crisis’ that disappeared

“It’s remarkable that this new geopolitical weapon that we have is completely off the table.” -Vincent DeVito, attorney and former U.S. assistant secretary of energy

As benign as the politics of oil have become for the U.S., it has become an enormous source of social strain for OPEC countries, many of which are being deprived of the currency needed to maintain social stability. According to data from the International Monetary Fund, countries such as Iran need a price of around $122 per barrel of oil just to balance their budgets. Several others need a price of between $100 and $130 per barrel to come close to breaking even.

Meanwhile, energy watchers say the U.S. could be doing even more to loosen the constraints imposed by oil producers overseas. In theory, that could heap even more pressure on oil prices.

Vincent DeVito, a partner in Bowditch & Dewey and former U.S. assistant secretary of energy in the administration of former president George W. Bush, insists the issue of oil should still be of major importance to presidential candidates. Oil’s place as a national security issue and a booming market mean candidates should continue to address the subject.

DeVito acknowledges that dependence on foreign oil has decreased, but he says the U.S. “has not been exercising its producer muscle” for geopolitical and national security purposes, most notably to counter Russia’s ability to strong-arm its neighbors with its oil and natural gas riches.

However, DeVito acknowledged that the U.S.’ vulnerability to OPEC is starkly different from his days as an energy policymaker, when he and his colleagues were “in the Situation Room of the White House figuring out how we were going to communicate with Venezuela, because we needed natural gas” for the purposes of powering electricity.

“It was a quiet crisis within the [Bush] administration,” DeVito says, “and then it disappeared” thanks to booming supplies of oil and natural gas—which has made the U.S. the world’s leading nat gas producer with trillions of cubic feet of the resource.

Open those exports

U.S. oil producers have been steadily increasing oil production since 2008, creating a surplus of oil in the global marketplace and forcing OPEC to embrace global market oil prices. Yet the U.S. has not taken full advantage of its growing energy supplies, some say, a dichotomy encapsulated by the debate over the ban on oil exports.

“It’s remarkable that this new geopolitical weapon that we have is completely off the table,” DeVito said.

Carlos Pascual, senior vice president of IHS and former ambassador to both Ukraine and Mexico, says that oil exports would bring large benefits. Citing an IHS study, he says oil exports would boost growth, jobs and help push down gas prices as global crude prices fell.

Exporting oil would lead to the further loosening of OPEC’s grip, which Pascual says is in the throes of “a financial crisis that has in effect torn OPEC apart, and obliterated its ability to play the kind of role it has played in the market for the last 40 years.”

The impact on national security is something policymakers would do well to consider, the analyst contends. By limiting oil exports, “we provide the perfect excuse for a country like Russia to decide, if it wanted to, that restricting the export of gas for example to Europe is in its national security interest,” Pascual said. “They could use the precedent of the U.S. restricting exports as a foundation for their decision.”


8 Comments on "OPEC to take a backseat in 2016 elections"

  1. Plantagenet on Mon, 27th Apr 2015 11:26 am 

    The push is on for oil exports. When CNBC starts claiming we have to export oil to help our national security, you know the policy of restricting oil exports is going to change.

  2. BobInget on Mon, 27th Apr 2015 11:29 am 

    “The ‘quiet crisis’ that disappeared”

    “It’s remarkable that this new geopolitical weapon that we have is completely off the table.” -Vincent DeVito, attorney and former U.S. assistant secretary of energy

    Remarkable! I’ll say.

    At Saturday’s ‘Correspondent’s Dinner’ Obama quipped he’s in the fourth quarter of his presidency.

    If you wish to leave the game now, you’ll be missing the most exciting last few minutes.

  3. BobInget on Mon, 27th Apr 2015 11:51 am 

    If geography is all that matters here, I say export. Gasoline prices will go higher, but if you’re a Koch Brother, you won’t mind.

    Put a billion on a nice white male nose for presidency and you stand to make ten billion return.

    America faces dramatic oil import deficits. I’ve listed reasons, countries here in the past. (Google Chinese loans to Ecuador,
    Venezuela and on and on)

    US production is falling.. along with ‘rig count’… fact.

    Canadian oil sands projects have, once again, been put on slow speed.
    By this time in 2016, Western Canada will be
    shipping product East, not south.(or West)

    Pipelines? We don’t need no stinkin pipelines! We got trains.

    Natural gas extraction, except for a few choice locations, as unprofitable as oil.

  4. BobInget on Mon, 27th Apr 2015 12:15 pm 

    The next battles with Russia will be over Arctic oil, thanks to AGW.

    Japan, the Philippines, Vietnam uniting to fight China for “minerals” in China Sea.

    IS, al Qaeda going after biggest prize in oildom, The Saudi Arabian Power Play.
    (play by play available here)

    Venezuela, world’s biggest untapped oil
    fields, future exports pledged to China.

    Here’s the real scoop;
    Deep, I mean really deep in our GMO..
    This tells a potential ‘export’ story better;

  5. BobInget on Mon, 27th Apr 2015 12:33 pm 

    What SeekingAlpha won’t say.

    If oil is in such surplus, why is XOM et all planning to drill wells into GMO unknown territory?
    Equipment that functions at these great depths has yet to be proven. These guys are ‘betting the company’ and the environment
    on a few decades more oil.

    Why is Shell doubling down in the Arctic?

    Why is China suiting up with armor to defend
    spurious claims on “mineral resources”?

    Why will African nations duke it out over potential oil fields?

    Why will the US be ‘forced’ to send military into Saudi Arabia ?

  6. Perk Earl on Mon, 27th Apr 2015 1:10 pm 

    “According to data from the International Monetary Fund, countries such as Iran need a price of around $122 per barrel of oil just to balance their budgets. Several others need a price of between $100 and $130 per barrel to come close to breaking even.”

    Is that what they need or want? There is a difference.

    Either they have really gone into overshoot in a few short years or they have just gotten spoiled by high oil prices, because it wasn’t long ago they got 30 dollars a barrel and weren’t complaining about how much they got.

    I want a red Lamborghini but need (own) a two-tone (forest green w/beige below the doors) 97 Ford Ranger XLT (club cab), w/matching shell (used mostly for business.

    Did you catch the difference there?

  7. Makati1 on Mon, 27th Apr 2015 7:35 pm 

    The ME is one sick joke these days. As is the idea of the UFSA becoming a major oil/NG exporter…lol.

    The UFSA has a lot of corporate owned clowns running for the office of Reichsführer, which will be the major sheeple distraction for the next 17 months. Less than half of the ‘voters’ will show up at the poles to vote for one of two different members of the same team. IF the country gets that far.

    I still give it a 25:75 that there will be no elections and 70:30 that WW3 will be underway in Europe and maybe even on the US48 before then. We shall see. Summer is heating up in the Northern Hemisphere. Keep cool!

  8. Dredd on Tue, 28th Apr 2015 8:18 am 

    On this ship of state that is where the steering wheel is (Good Nomenclature: A Matter of Life and Death).

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