Oil prices climbed on Wednesday, as markets weighed the impact of the United Arab Emirates’ decision to leave the OPEC producer group and ongoing Middle East oil supply disruptions.

Crude prices have also rallied following a report that U.S. President Donald Trump was telling his aides to prepare for an extended blockade of Iran — a move that could herald a prolonged hit to vital crude supplies.

Brent oil futures, the global crude benchmark, were higher by 3.3% to $114.93 a barrel by 04:48 ET (08:48 GMT), while U.S. West Texas Intermediate crude futures gained 3.8% to $103.65 a barrel.

UAE leaves OPEC

The UAE’s exit from OPEC, which will become effective on Friday, comes as a major blow to the oil producing group during a time when it is facing persistent disruptions because of the Iran war. The UAE said the departure would allow the country to focus more on its “national interests.”

However, it puts the UAE at odds with neighbor Saudi Arabia, the effective leader of the OPEC.

The UAE is largely expected to increase oil production, given that it has objected to OPEC output quotas in the past. But with shipping through the Strait of Hormuz still blocked, any increase is likely to come only after the reopening of the narrow waterway off Iran’s southern coast through which a fifth of the world’s oil traverses.

Yet such a scenario does not appear to be imminent. Trump has instructed aides to prepare for a prolonged blockade of Iranian ports, the Wall Street Journal reported on Tuesday evening. The president has opted to intensify efforts to choke Iran’s oil exports and further pressure the country into a deal, the report said.

Trump has also rejected an Iranian proposal to reopen the Strait of Hormuz and end the war, with Washington demanding more curbs on Tehran’s nuclear program, the WSJ said.
Tehran has largely decried the U.S. blockade and has called for its removal before any peace talks can take place. While Trump last week indefinitely extended a ceasefire with Iran, efforts to bring together both sides for fresh peace talks have been unsuccessful.
Source: Investing.com