UAE's withdrawal from OPEC shocks Wall Street; investment banks respond quickly: limited short-term impact, medium-term downside risk for oil prices.

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Several hours after the UAE announced it would officially withdraw from OPEC on May 1st, Wall Street has already begun assessing the impact on the energy markets in the coming weeks and months.

Analysts from JPMorgan, UBS, and Bloomberg largely agree on the core judgment: In the short term, Brent crude prices are unlikely to see major volatility, as the closure of the Strait of Hormuz remains the primary bottleneck restricting Gulf energy exports.

On Tuesday, spot prices reacted almost negligibly to the news, falling only 1% from the day’s high, but still accumulating a 3% gain for the day.

However, Brent’s medium-term outlook is gradually being overshadowed. If the US and Iran reach a peace agreement and shipping through Hormuz resumes normalcy, the UAE will be able to freely ramp up production outside of OPEC’s quota system. Then, global crude supply will face a new round of shocks, OPEC’s price floor capability will be further weakened, and Brent’s downside risk will rise with Gulf exports returning to normal.

The historic split between UAE and OPEC aligns with the UAE’s long-term strategy and economic planning. It demonstrates the country’s evolving energy policy—maintaining market stability responsibly while increasing flexibility to respond to market dynamics. After nearly sixty years in the oil cartel, now OPEC’s third-largest producer, the UAE will officially leave on May 1st and may start increasing output in the ensuing months.

JPMorgan analyst Ian Mitchell told clients:

UAE has announced its exit from OPEC. Short-term crude price movements will still be dominated by the situation at the Strait of Hormuz, but this exit likely means mid-term prices will be lower than previously expected, though the influencing factors are complex.

On the matter of taking profits on European oil & gas stocks—a little sooner is better than a little later.

Mitchell cited a key statement from UAE Energy Minister Suhail Mohamed al-Mazrouei last year: “If the market needs, we can produce 6 million barrels per day.” However, the official goal of 5 million barrels per day by 2027 remains unchanged.

Oil price impact—limited in the short-term; facing greater downward pressure in the mid-term due to UAE’s capacity increase. The announcement’s immediate impact on prices is limited—as long as Hormuz is blocked, UAE cannot expand exports, making production increases impossible.

In the mid-term, once the Middle East stabilizes, prices may decline as UAE will no longer be bound by OPEC quotas and can freely increase output. The final impact depends on several factors:First is the UAE’s current actual production level.Second is how quickly the gap between normalized production and maximum capacity can be closed—the UAE promised in its Tuesday statement to “continue responsibly, increasing supply gradually based on demand and market conditions.”Third is how the rest of OPEC responds to UAE’s production increase. However, Saudi Arabia and others are unlikely to further cut output to make room for UAE’s expansion.

Before the US-Iran conflict broke out, UAE’s daily output in February was 3.4 million barrels. JPMorgan’s pre-war forecast for UAE’s average daily production this year was about 3.9 million barrels, OPEC’s 12 members total 28.9 million barrels/day, and the broader OPEC+ output was 37.7 million barrels/day.

UBS analyst Henri Patricot’s initial assessment of UAE’s OPEC exit mirrors JPMorgan: with the bottleneck at Hormuz still shut, short-term price impact is limited; but once Gulf exports normalize and Abu Dhabi can freely expand outside the quota system, the medium-term landscape turns clearly bearish.

Patricot told clients:

Limited short-term impact; mid-term oil prices face downside risk.

Given that the timing and pace of reopening Hormuz remains the main driver, we think this announcement is unlikely to materially affect near-term oil prices. UAE exports are already at their maximum achievable level; before Hormuz is reopened, output increases are not possible.

Looking further ahead, the announcement is likely bearish for oil prices.Before the conflict, UAE’s crude output was 3.6 million barrels/day, with an upper capacity limit of 4.5 million barrels/day (according to UBS estimates), leaving a nearly 1 million barrel gap. Several new projects are coming online, expected to raise UAE’s capacity to 5 million barrels/day by 2029. Abu Dhabi National Oil Company stated current capacity is 4.85 million barrels/day, aiming for 5 million by 2027.UAE has never produced above 3.7 million barrels/day, but we believe once Hormuz reopens, if desired, it can rapidly ramp up output.UAE’s statement suggests its production increase may not immediately hit maximum capacity. Additionally, weaker cohesion within the Gulf Cooperation Council raises geopolitical risks, possibly offsetting price downside from increased production.

UAE is not the first OPEC member to exit—Qatar and Angola have left in recent years. But UAE’s departure is a major challenge for OPEC.UAE is a veteran OPEC member, joining shortly after OPEC’s 1967 founding as Abu Dhabi Emirate. It is the third largest producer, second in spare capacity, accounting for about 25% of OPEC’s total idle capacity. Its departure will likely weaken OPEC’s future ability to manage oil market supply-demand balance, raising long-term price volatility.The risk of other OPEC members following suit also rises. Except for Saudi Arabia, no other member matches UAE’s spare capacity, but countries like Iraq plan to expand capacity in coming years.

Long-term economic impact: In an extreme scenario (considered unlikely)—if UAE quickly increases output to 5 million barrels/day before 2027’s end, its oil GDP may jump more than 20%.

Bloomberg senior energy columnist Javier Blas’ view aligns with JPMorgan and UBS—limited short-term price impact, but a bearish medium-term outlook:

The global oil market is experiencing an acute supply shortage right now.

But perhaps in weeks or months ahead, it could face a flood: Hormuz reopens, and a new price war erupts. The last price war in 2020 was between Saudi Arabia and Russia. The next may play out between neighbors—Riyadh and Abu Dhabi, on opposite sides.

Financial blog Zerohedge writes that it is certain: once Middle East peace is restored and Hormuz shipping normalizes, UAE will be able to freely expand crude output outside OPEC’s quota system. This will generate medium-term supply surplus pressure, likely pushing Brent and WTI prices lower and driving the energy market into a “long-term low oil price” scenario. The next question: will Venezuela and other OPEC members follow UAE’s lead?

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