Why UAE leaving OPEC may reduce oil prices:Expert says exit may give Dubai freedom to produce more influence prices

A study cited by news daily PTI of Jamie Cross, Assistant Professor of Econometrics Statistics, Melbourne Business School, says that the UAE leaving OPEC may reduce oil prices in the mid-term. The UAE’s exit from OPEC allows the country to break free of current agreements and increase its total exports. This would increase competition in global oil markets, putting downward pressure on prices over the medium term.
However, the study also warns that, given the current scenario of blockade of the Strait of Hormuz by the US, it is unlikely that oil prices may reduce or may reduce very marginally in short-term. Little relief in the near term The study adds that consumers should expect immediate relief. Oil prices are still being shaped by geopolitical disruptions due to the Iran war.
The Strait of Hormuz, which normally carries about a fifth of the world’s oil and gas, remains effectively closed to shipping traffic, which has already caused major disruption. This means that the UAE cannot simply increase its supply in the short term, and any price relief will take time to come. The UAE does have an export route that avoids the strait, via the Port of Fujairah on the country s east coast. But this cannot handle the country s total production and completely offset disruption in the strait. By withdrawing from the OPEC and OPEC +, the UAE will be able to independently decide how much oil it produces and sells. The country also has the capacity to increase its output by about one million barrels per day. It is world’s eighth largest oil producer and contributes 4% to global supply. So, if the UAE chooses to ramp up production, could it put downward pressure on the price of oil once shipments can resume through the Strait of Hormuz. The study doesn’t hesitant to add that if traders believe the UAE’s exit from OPEC will eventually lead to higher production, this could put downward pressure on futures prices. But if they believe the exit increases geopolitical tension and raises the risk of a future price war we could instead see more volatile oil prices rather than a clean fall.