Crude oil prices that continue to rule around $111 a barrel (bbl) are likely to stay elevated despite UAE's decision to quit the Organization of the Petroleum Exporting Countries (Opec) and the broader 22-member Opec+ alliance cartel from May 1, suggest analysts.
The closure of Strait of Hormuz (SoH), they said, is the primary reason for this as oil supplies from this region remain curtailed.
In a market already shaped by post-Hormuz supply disruption, geopolitical risk premia, and shipping vulnerability, the decision to leave OPEC may not immediately push prices lower, suggest analysts at ASK Private Wealth.
Besides the geopolitical premium, they said, oil prices may remain supported by chronic underinvestment in non-Gulf production, and resilient demand — particularly from non-OECD Asia.
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All this, they believe, is likely to result in a market where the floor (for oil prices) is less certain, the volatility range is wider, and the premium previously attached to OPEC+ credibility gradually erodes.
“Any reduction in visible producer coordination can initially add to the risk premium, particularly when spare capacity across the system is at historical lows following the Iran conflict's removal of significant volumes from the market. Over the medium term, however, the implication is more likely to be a lower cartel premium and a wider trading range,” their analysts wrote in a recent note.
The UAE, with capacity of around 4.8 million barrels per day (bpd), has long been one of the most influential and compliant members of Opec+, and is currently the fourth-largest producer in the alliance. It was a founding member, having joined through the Emirate of Abu Dhabi in 1967.
For the UAE, the strategic gain from exiting OPEC, according to analysts at ASK Private Wealth, is optionality. "Independent production policy gives Abu Dhabi greater room to align supply decisions with investment return requirements, long-term customer commitments (particularly in Asia, where the bulk of UAE crude flows), and the country's broader economic diversification goals," they said.
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Crude oil prices, meanwhile, have surged nearly 52 per cent from February 27, a day before the war broke out, to $111/ bbl now. UAE’s decision to quit Opec and Opec+ is unlikely to ease crude prices in the near-term, said VK Vijayakumar, chief investment strategist at Geojit Investments.
“There are indications that the US-Iran standoff may continue much longer, which can impact oil prices and keep them elevated. Brent crude at $110 is negative for India. As long as crude price remains elevated, the downside risk to India’s growth and the upside risk to inflation will remain high,” he added.
The Strait of Hormuz
The disruption of supplies via the SoH closure, analysts said, is another worrying point. With negotiations between the US and Iran delayed, analysts at Rabobank International assumes another 2–4 week extended closure of the strait , pushing any meaningful normalisation of energy flows toward late September.
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The oil markets, they believe, are materially under-pricing the duration and severity of the closure of the strait. The oil market, they said, is at an inflection point where the macro-economic consequences of continued disruption become increasingly severe with each passing week.
"In the adverse scenario of a protracted conflict, another month or two of closed flows would lead to the exhaustion of global stockpiles. This will force prices to levels that actively destroy demand. In this case, we see sustained Brent prices well above $125/bbl, with meaningful downside risks to global GDP growth," wrote Florence Schmit and Joe DeLaura of Rabobank International in a recent note.