Analysis by Energy Workforce President Tim Tarpley
International events continue to dominate the energy space this week. On Monday, in what came to some as a surprise announcement, UAE announced that they would leave OPEC on May 1st of this year. This move is significant as the UAE was the third largest producer in the group. While this news came as a bit of a surprise to some, the UAE has long complained about OPEC production quotas being too low. Politics is also certainly in play here as the UAE and Saudi Arabia have often had a strained relationship and there have been recent disagreements as to how regional security has been handled in relation to the Iran crisis.
The withdrawal is unlikely to dramatically affect the world oil markets as the Strait of Hormuz continues to remain essentially closed so any immediate increase in production in the UAE will take some time to reach the markets. It is, however, very significant in weakening OPEC’s overall hand and to some extent strengthens the U.S. hand as President Trump has been a consistent and longstanding critic of OPEC during his time in the White House. However, if and when movement through the Strait of Hormuz returns to normal, we can expect that the UAE’s 4.6 million barrels a day of production will increase.
Meanwhile, the crisis with Iran continues with no clear end in sight. Early this week the Iranians made an offer to open the strait in return for an immediate end to the U.S. blockade of Iranian ports. This proposed deal would leave the negotiations to a later date on the fate of the Iranian nuclear material and program. While the U.S. side did not immediately reject the proposal, they expressed serious concern about the reality of the proposal and the assurances that the Iranians would actually follow through on the nuclear material portion of any deal with the leverage of the blockade over. Meanwhile Brent crude is back to $110 and is likely to continue to climb. With Iran seemingly in the driver seat for now, we are likely to continue to see elevated prices for the near term. While some analysts argue demand destruction is inevitable, others are not so sure of the long term implications, especially if it resolves in the next few weeks.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
