The decision of the United Arab Emirates to withdraw from OPEC, under the shadow of geopolitical fluidity in the Middle East, reshapes the data in the tanker sector. In the short term, the impact on the freight market remains limited due to the overall curtailment of regional production, however the long-term consequences for the demand for available tonnage are projected to be significant.
At the same time, the market, from the prospect of a substantial surplus that was emerging a few months ago, is now faced with a potential historic deficit due to the rapid depletion of inventories.
Although OPEC+ still controls 48% of the global crude supply, the rapid shrinkage of strategic inventories renders the existing quota regime practically inactive. This dynamic allows the UAE and other producers to independently increase their production, enabling the feeding of tankers with new cargoes, regardless of the central decisions of the organization.
For the tanker market, interest is focused primarily on the volume of UAE exports. From 3.4 million barrels per day (Mbpd) in February, production capacity is now reported at 4.8 Mbpd, with a target of 5 million next year. With the end of the crisis, the Middle Eastern country can export an additional 1.5 million barrels per day. Thus, in the long term, balancing supply will require concessions, either from the remaining OPEC members or from higher-cost producers with flexible production, such as the US.
The substitution of American cargoes by Middle Eastern exports translates into a limited increase in ton-miles due to shorter routes to Asia, while nevertheless maintaining a positive sign for capacity demand. In an extreme scenario of a complete dissolution of OPEC, the market will enter a phase of instability, with supply dictated exclusively by the strategies of individual producers. In any case, the burden of balancing will ultimately fall on American oil or on OPEC, as has been the case for the last decade.
Source: Gibson
