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Good morning everyone, let’s quickly recap the most important things today – because we have very strong news, and frankly, it even covers all the news about Iran.
The United Arab Emirates announced its withdrawal from the OPEC+ alliance. The news was officially confirmed and even reported by Reuters and other agencies. Oddly enough, the market has yet to give it the volume it deserves, even though the issue may be one of the most important moves in recent months.
Let me explain this idea briefly.
OPEC+ is an alliance of oil producers that has agreed to cut production to keep oil prices high. The idea is clear: the lower the supply, the higher the price, and the profits will increase.
But this model only works when prices are in an upward trend. Then everyone will be satisfied – production is reduced, but revenue is increased.
The problems start when prices drop.
Picture yourself in the UAE or Saudi Arabia: production is down, volumes are down, and prices are down. It means loss in two aspects – quantity and price.
Additionally, players outside OPEC+, such as the United States and Canada, will take advantage of the situation to take away your market share. So much so that within a certain period of time, they controlled more than half of the global market. Naturally, this can lead to stress and resentment.
Here we return to history.
In 2020, when the deal started to unravel, the market was flooded with oil and demand collapsed with the COVID-19 crisis. The result? Prices fell sharply. Brent crude oil fell to nearly $20, with some contracts reaching negative prices.
Today we see a similar situation—and perhaps more complex.
The alliance was already suffering losses due to falling prices before the conflict with Iran escalated. This created tensions between the core states. If we are realistic, the real influence in the market is in the hands of a limited number of countries: Saudi Arabia, the United Arab Emirates, Iraq, Kazakhstan – and the United Arab Emirates is the main player among them.
Now add geopolitical factors.
Your alliances with countries like Iran pose risks to oil exports and impact shipping routes through the Strait of Hormuz. This situation is difficult to sustain in the long term.
That’s why the UAE’s withdrawal is a very strong signal.
The market has yet to fully absorb the news. The price is still above $100, but there are a few factors we need to pay attention to:
– The straits still have restrictions, which reduce the width
The status of infrastructure after the strike is unclear, and the speed of recovery is unknown
But the UAE has one important advantage – the port of Fujairah directly overlooking the Sea of Oman. This means they can export oil without going through Hormuz.
If they decide to increase production – which is already happening – they can put a lot of product on the market.
Currently, OPEC+ is cutting production by about 5 million barrels per day. The UAE alone could add 2 to 3 million. This means you can recoup a significant portion of this discount.
The series starts here: Other countries may drop restrictions and we will see price wars like the ones in 2020 again.
This situation could put a lot of pressure on the price – not just $60, but possibly even lower.
But there is an important condition: the sea channel must be opened. Without this, the market remains limited.
At the same time, Trump has suggested that the blockade may continue – and it is clear that he is trying to pressure Iran into a deal.
But if the crisis is resolved and supply flows return to normal, the oil market could change dramatically and not return to previous levels.
Regarding economic news:
Today we have interest rate data. G7 countries have said they will not change policy now as stabilization is expected in the United States and Canada.
What matters most is not the decision itself, but the tone of the statement. Are you strict? Are there any signs of a rate hike in the near future? This will drive the development of the market.
Overall, I expect today to be relatively calm. As the European session opens the picture becomes clearer and we trade based on the data.
I’ll see you at the meeting – God willing, we’ll get the best 👍