BARCELONA, Spain – The world’s eighth-biggest producer of oil, the UAE, left the OPEC cartel on 1 May, and our panel of economists are already re-examining their forecasts in light of the decision.
The UAE has chafed for a long time against the fact that its OPEC production quotas have been far below output capacity compared to other members of the Saudi-led cartel. However, it is only the outbreak of the Iran conflict – a war that few would have expected the “America First” President Trump to have made at the start of his term – that made such a quick departure possible.
As analysts at ING, one of our panelists, explain:
“The timing of the exit was planned well; announcing a departure during a period of significant supply disruption limits the market impact. Had this been announced any other time, we would likely have seen more downward pressure on oil prices.”
Accordingly, the UAE’s decision to leave the cartel is another result of what we have labelled in past newsletters as the “age of uncertainty”, which is forcing economists to be ever more agile, redrawing their forecasts on a running basis.
As analysts at Fitch Solutions explain, the move will help raise the country’s output from its recent peak of 3.4 million barrels per day (mbpd):
“The exit will allow the UAE to align output policy more closely with ADNOC’s expansion strategy, monetising capacity growth toward 5.0mn b/d [the goal for 2027] without OPEC+ quota limits and reinforcing the commercial rationale for further upstream investment. The exit makes the UAE’s oil sector more attractive to foreign investors as it removes the risk of investing in capacity that can’t be used due to production quotas.”
Here are more takes from our network of analysts, straight off the press:
Goldman Sachs’ Adam Cook and Gabriel Hollis think the move might help the UAE’s oil output recover from the Iran war more quickly:
“The exit implies upside risk to our base case that UAE crude production recovers to 3.8mb/d by Oct26 (vs. 3.6mb/d before war), with our Feb26 potential UAE crude production estimate at just over 4½mb/d.”
ANZ’s Daniel Hynes and Soni Kumari said:
“Under a scenario where the UAE is fully unconstrained by quotas and able to monetise incremental capacity, we estimate that net additional supply entering the market would be close to 1.0mb/d.”
UBS economists note that the exit is the most significant yet from OPEC:
“The UAE’s imminent departure from the OPEC oil cartel is the most significant to date. Near term, there is little impact – oil prices are primarily influenced by Iran. Longer term, it may mean more supply, although OPEC’s influence in broadly defined energy supply is likely to decline at an accelerated pace with electrification. The move may signal a more urgent need for revenue by the UAE – reflecting reconstruction, rearmament, and the loss of revenues from oil, tourism, and nomadic wealth.”
JPMorgan analysts sum up the UAE’s motivations for leaving:
“The UAE has borne the brunt of [Iranian] attacks without deriving any clear benefit from its membership in the joint GCC alliance; as the UAE’s diplomatic adviser recently commented, there is no common strategy against Iran. On oil output, the constraints imposed by OPEC+ quotas have been most acutely felt by the UAE among the group’s members. Finally, the decision to leave OPEC was not merely an economic one, but also a signal that the UAE’s path forward may be more detached from the objectives of other GCC countries. This suggests that the gap with Saudi Arabia will widen further as the UAE builds a separate set of alliances and priorities.”