The United Arab Emirates’ exit from OPEC this week will weaken the influence of the cartel and its leader Saudi Arabia on the oil market, a development that could prove bearish for prices in the long term. <\/p>\n
The UAE was the most influential member of OPEC after Saudi Arabia. It was one of the few members, along with Saudi Arabia, that had meaningful excess production capacity to influence prices and respond to supply shocks, said George Lyon, head of geopolitical analysis at Rystad Energy.<\/p>\n
Excess capacity is idle generation that can be brought online quickly to deal with major crises. Saudi Arabia and the United Arab Emirates together control the majority of the world’s total excess capacity of more than 4 million barrels per day, making them particularly influential during periods of crisis. <\/p>\n
“The UAE’s departure removes one of the main pillars underpinning OPEC’s ability to manage the market,” Lyon said in a note on Tuesday. OPEC would be “structurally weakened” as a result, he said. <\/p>\n
It is also a blow to the Saudis because it weakens their ability to manage OPEC as an organization, said David Goldwyn, who served as the State Department’s special envoy and coordinator for international energy affairs from 2009 to 2011. <\/p>\n
Goldwyn told CNBC that Riyadh will still have significant ability to discipline the market with its spare capacity, but its hand will be weakened now that the UAE is not a member.<\/p>\n<\/div>\n
![\"RBC's](\"https:\/\/image.cnbcfm.com\/api\/v1\/image\/108298548-17774006341777400631-45573062287-1080pnbcnews.jpg?v=1777400633&w=750&h=422&vtcrop=y\")
The UAE’s decision to pull out of OPEC this Friday comes after weeks of missile and drone attacks by fellow member Iran. Tehran’s attacks on shipping in the Strait of Hormuz have disrupted the UAE’s oil exports, threatening the foundation of its economy.<\/p>\n
The UAE did not cite war as the reason for its departure. Energy Minister Suhail Al Mazrouei told CNBC in an interview on Tuesday that the timing of the UAE’s exit was to limit disruption to fellow producers in the group. <\/p>\n
In fact, the closure of the strait due to the UAE’s exit is unlikely to impact the market next year, Goldwyn said. Oil futures prices didn’t really react to Tuesday’s announcement. <\/p>\n
But the UAE’s departure could prove to be a downturn later, said John Kilduff, founder of Again Capital. He said this undermines the coordination needed among producers to keep prices from falling too much during supply shortages.<\/p>\n
Al Mazrouei said the UAE wants greater freedom of action to make production decisions without OPEC constraints and reach its target of 5 million bpd capacity by 2027.<\/p>\n
Andy Lipo, president of Lipo Oil Associates, said the UAE has followed Saudi-led oil production cuts for several years to support prices. Lipo said he has noticed that Iraq and OPEC+ member Russia are regularly exceeding their quotas. <\/p>\n
“When the conflict between the United States and Iran ends and the Strait of Hormuz reopens, I expect the UAE to produce as much oil as possible using any spare capacity it has in reserve,” Lipo told CNBC. <\/p>\n
Goldwyn said that if oil demand weakens and there is a large surplus in the future, the market may miss Saudi’s ability to lower prices. <\/p>\n
“There is significant risk of higher oil price volatility as a result of this decision,” Goldwyn said. \u201cBut in the end when market conditions require cooperation, the UAE leaving OPEC does not prevent it from cooperating with OPEC.\u201d <\/p>\n<\/div>\n
The United Arab Emirates’ exit from OPEC this week will weaken the influence of the cartel and its leader Saudi Arabia on the oil market, a development that could prove bearish for prices in the long term. The UAE was the most influential member of OPEC after Saudi Arabia. It was one of the few<\/p>\n","protected":false},"author":1,"featured_media":106174,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[56],"tags":[3853,5424,4093,3384,2335,415,16327,10136],"class_list":{"0":"post-106170","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-bible-news","8":"tag-blow","9":"tag-cartels","10":"tag-exit","11":"tag-influence","12":"tag-major","13":"tag-oil","14":"tag-opec","15":"tag-uaes"},"_links":{"self":[{"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/posts\/106170","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/comments?post=106170"}],"version-history":[{"count":1,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/posts\/106170\/revisions"}],"predecessor-version":[{"id":106176,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/posts\/106170\/revisions\/106176"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/media\/106174"}],"wp:attachment":[{"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/media?parent=106170"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/categories?post=106170"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/christiancorner.us\/index.php\/wp-json\/wp\/v2\/tags?post=106170"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}