- The Saudis have a long history of using their influence within OPEC to get their way.
- It is important to take reports of a rift between the two countries with a grain of salt.
- The UAE was frustrated with the OPEC+ agreement, which is a global agreement to limit oil production.
Dear Reader,
An article was recently released that highlighted a disagreement between Saudi Arabia and the United Arab Emirates. This disagreement is real, but the idea that the UAE is leaving OPEC is an exaggeration.
It’s possible that this “leak” was a way for the UAE to push their agenda within OPEC. This isn’t the first time the Saudis have used this tactic to make their point about prominent issues, such as Yemen and production levels.
Before we look at the Yemen situation, here is a quick geography refresher.
Most of our readers know that Yemen is a country in the Middle East, but did you know that it has been in a civil war since 2014?
“The Yemeni civil war is an ongoing multilateral civil war that began in late 2014 between the Rashad al-Alimi-led Yemeni government and the Houthi armed movement, along with their supporters and allies. Both claims to constitute the official government of Yemen.” per Wikipedia.
A Bizarre Love Triangle
The Saudis and the UAE have been on opposing sides of the conflict, with the Saudis supporting the government (pink area) and the UAE supporting the rebels (yellow). The Saudis have used their influence within OPEC to try to get the UAE to back down from their support of the rebels.
The Saudis have a long history of using their influence within OPEC to get their way. This is why it is important to take reports of a rift between the two countries with a grain of salt. It is possible that the UAE is using this “leak” to put pressure on the Saudis to get their way. We need to keep an eye on the situation and see how it develops.
Recently, the Houthis proposed a deal to end the conflict, which the UAE proxies were okay with. However, the Saudi proxies rejected the proposal and got into an altercation with the UAE proxies. As a result, the UAE stopped supporting the KSA (Kingdom of Saudi Arabia) in Yemen, but has stepped up some nominal support.
Here’s a quick snapshot.
The UAE was frustrated with the OPEC+ agreement, which is a global agreement to limit oil production. They believed they were being shortchanged on production, so they decided to cheat and produce/export more than what was agreed upon. The UAE has invested billions in expanding their production capacity, but KSA threw them under the bus and said nothing about other countries cheating.
This upset the UAE and they decided to launch Murban futures, a type of trading vehicle, to get back at KSA. This new trading vehicle does not have a destination clause, which goes against how KSA and Kuwait trade their crude.
The New Crude on the Block
Murban is a light, sweet crude grade unique to the UAE, with consistent and stable production volumes, many international buyers, and many long-term concessions and production partners. ADNOC’s flagship crude has a carbon intensity less than half the industry average, positioning it in the market as a lower carbon crude oil when compared to other crude grades.
Discovered in 1958, Murban has played a pivotal role in enabling the UAE’s economic growth and development. Production capacity of Murban is over 2 million barrels per day and it accounts for around 50% of the UAE’s total production capacity.
Murban is traded alongside Brent and WTI (West Texas Intermediate) crudes, positioning it as an important price marker for crude oil to the East ADNOC (a diversified energy and petrochemicals group wholly owned by the Emirate of Abu Dhabi) plans to increase the production capacity of Murban to more than 2.5 million barrels per day by 2030 as it expands its crude oil production capacity to 5 million barrels of crude per day.
It is no surprise that the UAE is trying to increase the amount of oil they produce and sell. To do this, they are attempting to convince OPEC+ to increase their baseline production. The UAE has held up the OPEC+ agreement for several weeks to get their baseline moved higher. To add pressure to their negotiations, they have leaked information to the media. This is a posturing tactic, not a true push to leave the group.
Here’s why.
Leaving Benefits No One (Especially Investors)
A split from OPEC would give non-OPEC producers such as the U.S., Canada, and Brazil more market share.
And adding more production could bring back the brief oil price war from 2020 when more supply contributed to a crash in prices, which most OPEC+ economies do not welcome.
If the Saudis and UAE are unable to resolve their differences, there could be a return to price wars and a very bad sign for energy investors.
With markets still nervous after the Russian invasion of Ukraine, the UAE would risk more conflict with its neighbors. The disadvantages certainly outweigh the benefits. Stay tuned.
Kind regards,
Freedom Financial News
