Why the U.A.E. Is Breaking Up With OPEC

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Alex Ossola (0:33)

The UAE is leaving OPEC. We'll get into what that means for the oil cartel and the oil market. Plus, why a bill intended to create homes has led to an existential crisis for developers that build homes to rent them.

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A lot of build-to-rent firms are contemplating the idea that if the Senate bill passes as is, this new growing sector of the rental market could go extinct essentially.

Alex Ossola (0:56)

The Justice Department charges former FBI Director James Comey for a second time. It's Tuesday, April 28th. I'm Alex Ossola for The Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

The United Arab Emirates said today that it would leave OPEC. It's a heavy blow to the oil cartel. The UAE is OPEC's third biggest producer. And according to figures by the International Energy Agency, its exit takes away 13% of OPEC's production capacity. For more, I'm joined now by WSJ Foreign Correspondent, Georgi Kantchev. Georgi, why is the UAE doing this, and why now when the war with Iran has hurt a lot of energy infrastructure in the region?

Georgi Kantchev (1:43)

One of the reasons is that they have a very ambitious investment program. They want to kind of increase their oil production capacity in the future. And being in OPEC function as a straight jacket. Right now, they're supposed to be producing around 3.4 million barrels a day.

Of course, right now, they're producing far less because of the crisis, but they want to increase that by up to 5 million. They want to be able to produce freely outside of the cartel. Another reason is that they've had kind of a rift with Saudi Arabia, which is the dominant producer in OPEC for a number of years. And all of that, now we have the Iran War, of course, reshuffling the alliances of the region.

Some extent, they're looking beyond the current war. The UAE seems to be making this calculated decision that longer term, they can increase output by a lot.

Alex Ossola (2:35)

This move also comes at a time when the US's rise as an energy exporter has kind of diminished OPEC's influence on energy markets. Where does the UAE's departure leave OPEC?

Georgi Kantchev (2:47)

This decision by the UAE to leave is a big blow to OPEC because ultimately this is the third biggest producer.

Also important here is that the UAE and Saudi Arabia, these are the only two countries that actually have spare capacity, meaning that they can ramp up production quickly. All the other countries are producing kind of close to their potential limit, which means that in another situation of a supply shock, they can increase production quickly. That is being obviously taken out now with UAE leaving from May 1st, which is just in a few days, and that obviously decreases the flexibility of OPEC to manage the market, which they have done for decades.

Alex Ossola (3:26)

Looking at oil prices today, they don't seem super affected by the announcement, but what about in the future? How could the UAE's departure from OPEC affect energy markets?

Georgi Kantchev (3:35)

Right now, there is really not much of an impact, precisely because all the countries in the Gulf are constricted by the Strait of Hormuz. But in the longer run, if the UAE increases its production, that will potentially add more oil to the market, which means prices could go down.

Alex Ossola (3:52)

That was WSJ foreign correspondent Georgi Kantchev.

The Justice Department has secured a new indictment against former FBI Director James Comey, a prominent critic of President Trump. Prosecutors charged Comey with threatening Trump based on a photo Comey posted on social media last year. In the photo, seashells were arranged in the numbers 86-47. Trump officials at the time said it was a threat to encourage killing Trump, as 86 is old-time slang for get rid of, and Trump is the 47th president. Comey said then that it didn't occur to him that the post would be read as a threat. He and lawyers representing him didn't immediately respond to requests for comment. The case is the Justice Department's second attempt to prosecute Comey. He was charged in September with lying to Congress, but a judge dismissed that case.