The OPEC and OPEC+ groups are not expected to falter following the abrupt, but not necessarily surprising, exit of one of the biggest producers, the United Arab Emirates (UAE), according to consultancy Energy Aspects.
In a surprise announcement on Tuesday, the UAE said it is quitting OPEC and the wider OPEC+ alliance effective May 1 to pursue its national interests.
For years, the UAE has been working to boost its crude oil production capacity to 5 million barrels per day (bpd) by 2027, and has frequently clashed with its fellow OPEC and OPEC+ producers over quotas. The UAE has insisted that it should be allowed to actually use more of its growing spare capacity.
The move to exit, although it is abrupt and with only a three-day notice, is not shocking, considering the UAE’s long-standing grievances over what it has seen as lower-than-deserved oil output quota, Amrita Sen, founder and director of market intelligence at Energy Aspects, told CNBC on Wednesday.
The remaining producers in OPEC+ will keep the group together, Sen said, adding that UAE’s exit doesn’t change “the ability of OPEC to influence oil prices.”
Any output ramp-up from the UAE, once the Strait of Hormuz crisis is over, of course, would not be too much above what Abu Dhabi was pumping before the war. The UAE will not be able to drive oil prices significantly lower in the future, Sen added, also noting that the UAE said it would remain a “responsible” producer responding to market fundamentals.
Other market observers believe the UAE departure from OPEC could boost global production in the medium term, once the Hormuz crisis is resolved.
“The UAE’s exit from OPEC is a big blow to the group, though it will have little impact on the market in the short term amid ongoing supply disruptions,” ING’s commodities strategists Warren Patterson and Ewa Manthey said in a Wednesday note.
“But in the medium to longer term, it means more supply for the market.”
Energy Aspects’ Sen argues that all OPEC Gulf producers will, like the UAE, pump at capacity once the Strait of Hormuz crisis ends, whenever this is, as they will look to restart the shut-in production and respond to the deepening global inventory drawdown that’s currently happening with the Strait closed.
By Tsvetana Paraskova for Oilprice.com
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