OPEC, long a villain in America's eyes, is now trying to flip the script

Key Points
  • OPEC is making a greater effort to communicate its role in oil markets to U.S. audiences, which have long seen the group in a negative light.
  • OPEC Secretary General Mohammed Barkindo says the group has been operating in a silo for too long, and that is not a good policy in a globalized world.
  • The push comes as anti-OPEC legislation advances in Congress.
OPEC Secretary General Mohammad Barkindo
Mary Catherine Wellons | CNBC

For many Americans, OPEC is the villain of the oil market, a secretive cabal whose members enrich themselves at the expense of the rest of the world by withholding petroleum and driving up the cost of the precious resource.

This week, the group's chief representative suggested that OPEC itself bears some responsibility for that perception — if only because it has neglected to tell its own story.

"We have been operating in silos for too long, and this is not good practice in today's globalized world," OPEC Secretary Mohammed Barkindo told reporters gathered in Houston for CERAWeek by IHS Markit, one of the year's biggest energy conferences.

The admission was just one example of how OPEC is seeking to take ownership of its reputation and change the way Americans think about the group. Under Barkindo's stewardship the group is increasingly communicating with U.S. audiences at conferences, think tanks and other events.

The key message is that OPEC is a stabilizing force in a volatile oil market prone to a destructive cycle of boom and bust. By opening the taps or throttling back supply, OPEC can keep oil flows and crude prices at sustainable levels — not too high to hurt consumers, but not too low to choke off necessary investment in future supply.

OPEC Secretary General on Saudi Arabia's oil production, Venezuela and NOPEC

Barkindo said OPEC continues to reach out to stakeholders throughout the energy world because "with more dialogue there will come more understanding" and less "miscommunication."

Turning around OPEC's image in the U.S. would be difficult at any time. Many Americans still view the group through the lens of the 1973 Arab oil embargo, when the Middle East-dominated group cut off oil supplies in retaliation for the West's support for Israel in the Yom Kippur War.

More recently, President Donald Trump has reinforced that perception. Throughout the past year, he has regularly taken to Twitter to blame OPEC for rising oil prices. At last year's United Nations General Assembly, he told the nations of the world that OPEC is ripping them off.

Those barbs have heightened concerns about anti-OPEC legislation advancing in Congress, injecting a urgency into Barkindo's project to reframe its role in the global market.

The legislation, the No Oil Producing and Exporting Cartels Act, would give the U.S. Justice Department authority to sue OPEC for coordinating output. Cutting production to drain oversupply and boosting output in times of scarcity are OPEC's main levers for balancing the market and adjusting prices, so the NOPEC legislation represents something of an existential crisis for the group.

Watch CNBC's interview with Dan Yergin from CERAWeek

That is putting market manager in an unfamiliar position: advocating against the legislation of a foreign country.

"It is not within our purview to dabble in domestic legislation in the U.S., but as stakeholders, since our industry is a global one, we have gone some way in breaking down these barriers through our outreach to the U.S.," Barkindo said on Tuesday.

Yet people who knew Barkindo before he rose to international prominence say the effort is little surprise. When he became OPEC's secretary general in 2016, he made an effort to bring in more outside voices and make the group more transparent, said Roger Diwan, vice president for financial services in IHS Markit's energy practice.

"He created a role for himself by being an ambassador," Diwan said. "He asked, 'Why are we hiding all the time as if we are doing something wrong?'"

But OPEC's diplomatic push under Barkindo faces obstacles. The most important American audience for the group is arguably Congress, but building ties with OPEC remains politically sensitive for lawmakers in light of the group's reputation among voters.

That is in part why Barkindo and OPEC members have delivered their message through influential, nonpartisan forums like the Atlantic Council and the Center for Strategic and International Studies.

"I think they are still learning what their messaging should be, but just that they're doing it I think is what's important — that they're getting out there," said Randy Bell, director of the Global Energy Center at the Atlantic Council, which hosted Barkindo last week.

OPEC's supply cuts have some traders exploring optimism in oil

OPEC has also found an unlikely ally in American shale drillers, who have made the U.S. the world's top oil producer and challenged OPEC's influence in the market. Beginning in 2017 at that year's CERAWeek conference, OPEC began meeting with shale drillers to open a dialogue about global supply and demand.

Just a few years ago, the two were largely cast as bitter rivals. OPEC declined to slash production to stop the plunge, arguing that high-cost producers — largely taken to mean U.S. shale drillers — should cut output first. That strategy failed and OPEC ultimately formed an alliance with Russia and other producers to curb output.

Now, U.S. drillers largely credit that policy for pulling the industry out of a nosedive that bankrupted about 200 U.S. energy companies. On Tuesday, BP CEO Bob Dudley told CNBC the NOPEC legislation is a bad idea, and OPEC plays a critical role in stabilizing markets.

Hess CEO John Hess delivered a similar message at the World Economic Forum in Davos this year, and Trump adviser and Continental Resources CEO Harold Hamm has also praised OPEC for acting responsibly.