Brent volatility driven by diplomacy challenges and Middle East supply risks

The international benchmark for oil, the Brent front-month futures contract, began April trading at $120/b before falling to a low of $90/b on April 17, driven by hopes of a ceasefire and potential negotiations between Washington and Tehran. These ultimately failed with US special envoys, Witkoff and Kushner, not travelling to Islamabad for further discussions. Currently, the US blockade on Iranian oil shipments is being enforced and Iran is instituting a toll system on the Strait of Hormuz, leading the Brent futures contract to a four-year high on April 30, trading at $126.41 before retreating.  

Weekly data from the US Energy Information Administration showed that the country’s commercial crude inventories fell by 6.23 million barrels in the week to 24 April, according to figures released on 29 April.  

The draw was driven by record crude exports of 6.44 million b/d and was partially offset by a 7.12 million‑barrel release from the US Strategic Petroleum Reserve. US crude imports averaged 5.75 million b/d over the week, making the US a net exporter of crude oil on a weekly basis for the first time. 

 

UAE withdrawal raises questions over OPEC cohesion 

The United Arab Emirates announced on 28 April that it will withdraw from the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC+ group, effective 1 May, ending nearly 60 years of membership. The UAE cited its “national interest” as the reason for the decision, which comes amid sweeping changes across the Middle East. The UAE is OPEC’s third largest producer after Saudi Arabia and Iraq, with production of around 3.5 million b/d in normal conditions. 

While the UAE was recently granted a 300,000 b/d quota increase for 2024, this remains modest relative to its longer‑term production capacity ambitions under current OPEC rules. Many OPEC members are already producing near capacity 

In contrast, the UAE is seeking the flexibility to execute its plans to increase production capacity to 5 million b/d by 2027. 

Other member countries such as Angola (2024), Ecuador (2020) and Qatar (2019) have likewise recently left OPEC, leaving Kuwait and Saudi Arabia as the members that hold spare production capacity in the OPEC group.  

 

Grid operators warn of sharp increases in electricity demand from data centers 

The Midcontinent Independent System Operator warned that they expect load to jump 35% to 163 GW by 2035 due to data center development. Electric vehicles, residential and commercial usage plus manufacturing are also expected to contribute to the increased load, but data center demand was the most difficult to plan for given opacity on planning. 

In Texas, the Electric Reliability Council of Texas (ERCOT) warned that demand may even quadruple to 367,790 MW by 2032 principally by data centers. 

Moving to the East coast, the New York Independent System Operator (NYISO) has warned that electric reliability margins have fallen to their lowest readings in recent history and could imperil the grid this summer. Only 417 MW is available with baseline summer weather. A protracted heatwave may present issues in the summer with the operator suggesting voluntary industrial reductions. 

 

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