UAE move will insert more volatility but OPEC ‘will survive’, analyst says

[0:00] take a closer look at what opec actually is the organization of petroleum exporting countries [0:06] was formed in 1960 by iraq iran kuwait saudi arabia and venezuela but it then expanded to [0:13] include the uae algeria libya nigeria gabon equatorial guinea and the republic of congo [0:21] opec members are responsible for around 40 percent of the world's oil that can be more than 30 [0:26] million barrels a day the group meets to set oil production targets and to manage global oil prices [0:33] for the group opec plus combines the original members with an additional 10 countries including [0:40] major oil producer russia cornelia meyer is a macroeconomist commodity expert and chief executive [0:48] officer of my resources she joins us now from burn in switzerland cornelia a shock with the uae [0:57] leaving opec what do you make of it well good afternoon adrian and thank you very much for [1:04] having me well yes i was i was startled um but you know the uae has for some time not been that happy [1:14] because what opec does its mandate is not to support the price its mandate is to keep markets adequately [1:22] supplied so during covet and and and when there was too much oil on the market obviously you know the [1:30] quotas were upped and the uae had invested so much in expanding its capacity so they were not happy about [1:38] being being you know curtailed their production being curtailed by the by the by the um by the by the [1:45] quotas and you know they think by 2027 they can produce 5 million barrels a day now they're producing [1:54] about 3.5 million barrels a day so they have bit of the spare capacity so i guess if they think it will [2:03] it will buy them freedom once this is over but until this is over you know there's also like everybody [2:11] else have most of their production on the wrong side of the strait of our moose to what extent though [2:15] camelia was the uh was they a a um a political aspect to all of this um the uae's criticized the [2:24] lack of support that it got from golf partners uh during uh iran's attacks um i mean is this uh to do [2:32] with geopolitics as much as it's to do with oil i think it has mainly to do with oil it may also have [2:40] to do some with geopolitics and you know you have seen that you know the uae has been sort of [2:47] dividing itself out a little bit of some of its gcc neighbors and it's been particularly with the big [2:55] gcc power the kingdom of saudi arabia it's been in many of the regional conflicts on the other side of [3:02] the conflicts from the kingdom and that is not helpful personally i think it's a pity they're leaving [3:10] personally i also think that once we're through this conflict that will it will do one thing it [3:16] will insert more volatility because opec has really done a fine job in terms of smoothing the waters [3:24] and adding production when it was needed and taking it off when there was too much production like for [3:30] instance during covet so i think uh i think it's it's it's uh in terms of the stability of oil markets [3:38] it is not necessarily the best move but opec will survive opec has survived much more cornelia if the [3:46] uae can now produce freely does that open the door for other producers to reconsider their commitment [3:53] to opec quotas to what extent might that be a sort of well i'll have some of that too [4:01] well i i sort of doubt it because opec has been has been quite instrumental as i said in evening out [4:09] when there was too much or too little oil on the market and particularly with the u.s being so strong [4:16] um in with all the the shale oil production that they have and with a lot of the non-o-pec producers [4:22] like brazil like guayana like argentina and so on also being quite strong um i think they're [4:29] most of the most of the opec members will see validity in um in in in having a coherent group [4:37] okay longer term if if producers start to prioritize market share over uh quota discipline [4:46] what does that do for opec does it does it fundamentally weaken its its ability to manage [4:52] both supply and prices well i think that as i said opec doesn't see itself as somebody who manages [5:00] prices they see themselves as somebody who manages supply um i think i think they will you know there [5:08] will be discussions and opec discussions behind the scenes they've always been strong discussions but i [5:15] think most of the opec member countries and also opec plus see validity in working together that doesn't [5:23] mean that the discussions are going to be quite um quite loud but internally but i i think i think [5:32] it it it's uh given where we are there is validity in having opec and most opec countries see that the [5:40] uae is a little bit the odd man out here because there are as you mentioned some of the political [5:46] issues and there's also they've invested so much in their in their in more capacity that they just [5:52] want to monetize it cornelia what what does this mean for for you and me when the when the strait of [5:58] homo is eventually reopens and supply normalizes does the uae's decision ultimately point to lower prices [6:07] at the pump or simply more uncertainty simply in my view and i haven't run it through my model yet [6:16] but in my view at this point prima facie it just adds to volatility and you know volatility is a [6:24] difficult thing imagine you're an airline and you don't know from one day to the next whether um your [6:31] your um your your jet fuel is worth uh 30 of the operating budget or 70 of the operating budget [6:41] you want stability cornelia it's always great to talk to you many thanks indeed for being with us [6:46] cornelia meyer there in bern in switzerland thank you very much indeed