Commentary: Will UAE’s OPEC exit be another risk for Singapore’s refineries?

The UAE can bypass the strait via an existing pipeline to the port of Fujairah but that route allows for only around 1.5 to 1.8 million barrels per day, well below its full production potential. This means that regardless of OPEC status, the UAE is severely limited by how much additional oil it can deliver to international markets.

Oil prices in the coming months will remain driven mainly by war risks, shipping delays, higher insurance costs and supply disruptions, rather than the UAE’s OPEC exit. This has been the case so far, with initial declines in oil prices due to the UAE’s announcement quickly offset by risks associated with the war amid stalled US-Iran negotiations.

The more significant implications will emerge only after the conflict eases and oil flows through the crucial strait return closer to normal. 

Once that happens, the UAE will no longer be bound by OPEC’s production limits. Analysts expect production by the Abu Dhabi National Oil Company (ADNOC) to possibly rise to around 4.4 million barrels per day within one to two years of normalised shipping conditions.

This could weaken OPEC’s ability to tightly manage global oil supply. With one of the largest, lowest-cost producers operating independently, competition among exporters, especially for Asian markets, is likely to increase. Over time, the world may see cheaper oil on average, albeit with more frequent price swings.