After quitting OPEC and OPEC+, the United Arab Emirates (UAE) is set to grow its oil production faster when the current Hormuz crisis is over, according to analysts at Barclays.
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 UAE’s move to exit OPEC could be an assurance for investors that output quotas won’t restrain the oil-production and economic recovery of the major Gulf producer once the war is over, Barclays said in a note carried by Reuters.
The remaining producers in OPEC+ will keep the group together, Amrita Sen, founder and director of market intelligence at Energy Aspects, told CNBC on Wednesday, adding that UAE’s exit doesn’t change “the ability of OPEC to influence oil prices.”
Sen argues that all OPEC Gulf producers will, like the UAE, look to pump as much as they can once the Strait of Hormuz crisis ends, whenever this happens, as they will want to restart the shut-in production and respond to the deepening global inventory drawdown.
Still, the UAE and the other producers will depend on the navigability status of the Strait of Hormuz in the future to turn oil producing capacity into actual exports, analysts at ANZ bank note.
According to ING’s commodities strategists Warren Patterson and Ewa Manthey, “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.”
“In the medium to longer term, it means more supply for the market. This suggests that the Brent forward curve should move into deeper backwardation,” the strategists wrote in a Wednesday note.
By Charles Kennedy for Oilprice.com
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