Shocking UAE exit rocks OPEC, but group will still hold significant sway over the oil market

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The ink was barely dry – so to speak – on this week’s Power Point when the news blew harder than the oil well in the movie There Will Be Blood.  The United Arab Emirates is leaving OPEC, and leaving now. 

It came as a shock to many.  The UAE may only be the 3rd largest producer in OPEC – and 8th largest in the world – but it punches above its weight in terms of influence.  I’ve been to a number of OPEC meetings and the UAE and its long-time energy minister Suhail Al Mazrouei have always been at the forefront of the negotiation and dialogue.  Whenever there was a conflict – usually with Iran – Saudi Arabia or the UAE appeared to be the country that could smooth it over.    When the group would finally make a decision on oil output, the UAE was often on the dais with OPEC’s President and Saudi Arabia, facing the worlds energy journalists.  

The reverberations of the news haven’t yet begun.  When you read this, the news will only be a day old and the May 1st exit not even here.  So how this ultimately plays out is anyone’s guess.  So here’s mine.

It’s no secret that the UAE can produce more oil than it is.  OPEC and its OPEC “plus” coalition, a group led by Russia and held together by what’s called the group’s Declaration of Cooperation, adhere – mostly – to an output quota system everyone agrees on.  More simply, it tells countries what they are allowed to produce.   Keeping to this quota system is meant to keep the oil market in balance and free from huge over or under supply.   

The problem with the quota system is that inevitably some countries aren’t going to be happy with their number.  That’s likely been the issue with the Emirates.  They can do more and want to do more, but they were bound by the OPEC+ deal.  Not anymore.

Outside any new flare-up around Iran, output from Abu Dhabi should pop.  Over 4 million barrels per day – they were at 3.3 million before the war – isn’t out of the question in the near term, and 5 million is possible.  The UAE has invested tens of billions of dollars to build out more capacity, and with this move to leave OPEC, it’s making clear that it wants the ability to pump those barrels.  It’s a story likely to come, but one that has yet to be written.

The story is that without those UAE barrels, OPEC’s global market share will fall below  30% for the first time ever.  For context, the group accounted for over 50% of the world’s production in the 1970s.  It held the power to move the oil market in any way it wished.  In some ways it still does, but not to the same extent.  As Bob McNally (see Inside Line below!) quips, it’s not the size of production that matters, but how much spare capacity you have.  He means that OPEC – via Saudi Arabia – can still put new barrels on the market, even above what may be needed.  It’s those extra barrels that really move prices, because any additional oil beyond what the market needs at the time has to be put in storage or has no value.  Riyadh has shiploads of extra oil to sell, which means OPEC still wields considerable power to move markets.

Here’s how the post-UAE OPEC exit market share will look.  OPEC itself will control about 28% of the global market.  The OPEC+ group adds another 14%, giving the OPEC alliance about 42%.   Non-OPEC and the U.S. will control the other 58%.

 The OPEC+ groups adds another 14%, giving the OPEC alliance about 42%.   Non-OPEC and the U.S. will control the other 58%.

Despite many tales of OPEC being a shadowy organization, OPEC is just a company with a pretty boring headquarters building in downtown Vienna, Austria.  It’s a business.  Now, it’s a slightly smaller business.

It may be down, but count OPEC out at your own will.   

The Iran War and changes in oil markets are benefiting the U.S. oil and gas industry.   One fascinating trend the last few weeks is how much exports are soaring out of America.   Ships are steaming into America from all over the world, with recent data showing a huge pop in American port calls.  Those ships are then filled with crude, immediately turn around, and head back out to sea.  Many are going to Asia, where concerns about shortages keep markets on edge.  It’s powerful enough that local news in Japan recently made a big deal about a tanker carrying oil from the U.S.  It’s always busy going in and out of Houston and Galveston, Texas and ports around New Orleans, but recently it’s been enough to no doubt make many busy days and sleepless nights for harbor crews. 

How Wall Street and the energy complex will react to the news will no doubt play out in days to come.  Here’s how things stood to start the week on macro oil.

Bank of America says it has “a base case” of a permanent end to hostilities – where oil flows mostly normalize by 3Q26, and Brent crude oil averages $92.50/bbl this year – is still likely. 

“We believe both sides could meet in Pakistan in the coming two weeks and agree to a memorandum of understanding that precedes a peace deal,’ the bank wrote. 

Bank of America though does note a “renewed hostilities” scenario that could send Brent to average $150 or more for the year.

Goldman Sachs is also more constructive on price.  It upgraded its 2026Q4 Brent/WTI forecasts to $90 and $83 (vs. previous forecasts of $80 and $75) due to lower Persian Gulf output.   The team at Goldman says it now assumes a “normalization in Gulf exports by end-June (vs. mid-May prior) and a slower Gulf production recovery. The economic risks are larger than our crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, product shortages risks, and the unprecedented scale of the shock.”

While marine industry sources have told me that ship traffic through the strait is getting better, it is still disrupted and a long way from normal.  The issue, as you well know by now, is time.  Just how long this state of disruption lasts may be the key to everything. 

Barclays writes that “every additional day of disruption shifts the balance of risk towards higher-for-longer energy prices and, eventually, demand destruction.”

The JPMorgan team, led by Natasha Kaneva, believes that “something is off” when it comes to prices and oil supply, given the condition of the Strait of Hormuz.  Kaneva and team note that nearly all the world’s spare capacity is concentrated in Saudi Arabia and the UAE and that it was “effectively cut off from global oil markets, stripping the industry of its traditional shock absorber.”  

We get it, Wall Street, oil prices are likely to be higher for longer.

But what about any investor who thinks oil prices could come down quicker than some may expect?  Jefferies has a plan.  It put together stock ideas for both a lower and a higher oil price scenario.  The firm excluded energy stocks and instead focused on buy-rated names that were “inversely corrected to energy’s performance.” 

In other words, if oil goes down, these stocks may go up.

Included on the list are chicken wings (WING), paying to go out to eat (TOST), buying equipment to make food (CHEF), as well as working out (PLNT) – probably to balance out the previous names. It’s a bet that consumer spending – especially among lower income spenders – will get a jolt as gasoline prices come in.

Three other stocks the JEF team highlights if oil prices go lower are:

Cruise line Carnival Corp (CCL), which is expected to have “robust” free cash flow generation that could help the company pay down debt and buy back stock.  Jefferies has a $35 target on Carnival.

Casella Waste (CWST) has a buy rating and a $120 target price in part because the company has a strong position in the Northeast and pricing power due to high barriers to entry in the trash collection industry.

Also, all the later-model cars on the road may eventually fall to Copart (CPRT), which will either help you sell or salvage your old ride.  Jefferies has a buy and $47 target on Copart.  

The full Jefferies list is here:

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Founder and president of Rapidan Energy Group

Given the shock news of the UAE ditching OPEC, we had to reach out to our friend Bob McNally.   Bob has been to many OPEC meetings both in Austria – where the group is officially headquartered – and around the world.  Bob also is the author of the excellent book “Crude Volatility,” which I think is a must read for anyone interested in oil and energy.  Bob was no doubt headed for another 25-hour work day when the OPEC news broke, but was kind enough to give us some time on here on Inside Line.

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