In 1890, the U.S. Congress passed the Sherman Antitrust Act. Congress meant to force the dissolution of cartels that had been formed in key American industries like oil, sugar, and tobacco. The Act declared that any combination “in the form of trust or otherwise that was in restraint of trade or commerce among the several states, or with foreign nations,” was illegal. Though challenged by business interests, the Sherman Act’s constitutionality was upheld by the U.S. Supreme Court in 1904.
On May 15, 1911, the Supreme Court ordered the dissolution of the Standard Oil Company, ruling it was in violation of the Sherman Act. The court’s decision forced Standard to break into 34 independent companies spread across the country and abroad. Many of these companies have since split, folded or merged. Today, the primary descendants of Standard include ExxonMobil, Chevron and ConocoPhillips.
Though used infrequently in recent decades, the Sherman Act is back in the spotlight as Congress considers a modification to put pressure on the 15-member Organization of Petroleum Exporting Countries (OPEC), as well as other oil-producing countries who collaborate with OPEC to influence oil prices.
In December 2016, OPEC, Russia and 10 other non-OPEC producers, in response to a growing global oversupply of oil that had dramatically depressed prices, approved a Declaration of Cooperation to collectively reduce production by 1.8 million barrels per day. Though the Declaration expired at the end of 2018, OPEC agreed at its December 2018 meeting to further reduce output by 800,000 barrels per day for the first six months of 2019.
Not surprisingly, in response to these cutbacks the OPEC crude oil price jumped from an average of $40 per barrel in 2016 to nearly $70 per barrel in 2018.
As prices were increasing last year, and President Donald Trump was tweeting his displeasure, the “No Oil Producing and Export Cartels Act of 2018” (NOPEC) was introduced in both the House and Senate with the implied goal of reducing gasoline prices for consumers. This proposed amendment to the Sherman Act would criminalize actions by foreign suppliers to limit the production of oil, natural gas, or petroleum products in ways that affect markets and prices. It would also eliminate the application of sovereign immunity to nations found to be in violation.
At first blush, this legislative effort to restrict the market influence of OPEC and its allies may seem appealing. But it could have serious unintended consequences for the U.S. oil industry and its continuing success in eroding OPEC’s global market share.
Last year, oil output in the United States reached an all-time high of 10.9 million barrels per day, making us the world’s number one producer. Texas also posted record oil production, reaching more than 4 million barrels per day in the summer of 2018.
According to projections by the Energy Information Administration, average daily production in 2019 will top 12 million barrels. A decade ago we were importing nearly four million barrels per day – today, we are exporting more than three million.
Without question, rapidly growing U.S. oil production, coupled with our entry into the export market, is putting downward pressure on gasoline prices for American consumers while substantially diminishing the influence of OPEC nations -- the principal objectives of the proposed NOPEC legislation.
By removing sovereign nations’ litigation immunity, NOPEC would likely invite retaliation in those countries affected by the act. This, in turn, could put America’s business and strategic interests at risk while having negligible impacts on oil and gasoline prices. Moreover, antitrust cases involving state-owned commercial activity can already be brought under existing laws, while the proposed NOPEC legislation would prohibit U.S. courts from carefully evaluating sovereign immunity claims.
In short, because the Sherman Antitrust Act already covers the commercial activities of foreign nations and state-owned companies in energy and all other globalized industries, there is no need for new legislation like NOPEC. Further, OPEC’s influence on energy markets has been substantially mitigated by America becoming the world’s leading producer of oil and natural gas.
Bernard L. Weinstein is associate director of the Maguire Energy Institute. The views expressed are the author's own.