OPEC’s DisUAEster…
- UAE to exit OPEC on May 1st
- It’s OPEC's third-biggest producer
- Longer-term implications are bearish for oil
- Limited impact short term due to Hormuz closure
- Brent remains at triple digits above $100
Qatar. Ecuador. Angola. All gone since 2019.
Now the UAE, one of its longest-standing members has just walked out.
This is a huge blow for OPEC and an event that will certainly reshape global energy markets.
The lowdown…
The United Arab Emirates (UAE) will leave OPEC on May 1st.
It’s OPEC’s third-biggest producer, accounting for roughly 12% of the group’s overall supply.
Note: The UAE pumped around 3 million b/d in recent quarters.
What does this mean?
This painful divorce could complicate OPEC’s coordinated supply management and weaken the group’s ability to enforce quotas.
At worst, there could be a negative domino effect that encourages other members to leave the cartel to chase profits.
Why did the UAE quit?
The UAE has invested heavily to expand output and has clashed with the cartel over quotas.
With a sustainable production capacity of 4.85 million b/d, its decision to exit would give it greater flexibility to navigate its long-term strategic and economic vision.
How will this impact oil?
Given how the Strait of Hormuz remains closed, the UAE’s exit will have limited impact on oil markets for now.
However, the longer-term implications are bearish for oil given a weaker OPEC internally.
Should other members start to leave the cartel and pump without production limits, this increased supply in the longer term may spell weaker oil prices.
Back to geopolitics…
In the meantime, Brent remains at triple-digits as traders await Washington’s response to a proposal from Tehran to end the war.
With the US blockade choking Iran’s oil trade, Tehran has signalled it may be willing to accept an interim deal to reopen the strait in exchange for an end to the blockade.
Technicals…
- Bullish Scenario: Ongoing closure of the Strait of Hormuz may propel both WTI and Brent deeper into triple-digit territory with the key levels at $100, $110 and $115.
- Bearish Scenario: If peace talks resume and the Hormuz re-opens, this could trigger a selloff. Sustained weakness below the $100 level could spark a bearish move toward $90 and $84 for Brent and WTI.
