- English
In many ways, the main surprise regarding today's announcement that the UAE will quit both OPEC, and OPEC+, from the start of May, is in its timing, as opposed to its substance.
While, undoubtedly, a pivotal event for the global energy market, the near-term implications of the move are likely to be relatively limited. Though the UAE have pledged to 'gradually' increase production after their departure, it goes without saying that actually doing so at present is somewhere between difficult, and impossible. As the US-Iran conflict continues, and the Strait of Hormuz remains impassable, the most significant issue for the crude market is not production, but actually shipping product to where it is needed. Today's announcement does not change anything on that front.
Still, the UAE's pre-conflict output target of 5mln bpd in 2027 could now prove more likely to be achieved, in turn helping crude benchmarks to normalise in shorter order once the ongoing Middle East conflict comes to an end.
As for the broader context, the UAE's dissatisfaction with OPEC has been clear for some time, with the country of the belief that OPEC quotas are an unfair limit, constraining the nation's major infrastructure investment projects. Of course, the obvious question is whether this now leads to the UAE leaving other regional alliances, potentially including the GCC, though such action has not been confirmed at the time of writing.
Furthermore, there could well be a broader aspect at play here, namely the hand of Treasury Secretary Bessent. One wonders if a 'backroom' conversation along the lines of quit OPEC, and receive a USD swap line in return, might've taken place at some stage, given recent media reporting, though again time will tell on that front.
As for crude in the here and now, all that really matters is whether the Strait of Hormuz is open, or closed. At present, it's essentially shut, tightening supply conditions day-by-day, and probably seeing benchmarks continue to grind higher on a daily basis as well.
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