UAE’s OPEC+ exit signals structural fractures, but near-term oil impact limited: Matt Orton

The recent development around the UAE stepping aside from OPEC+ coordination may have stirred headlines, but market strategist Matt Orton from Raymond James Investment believes its immediate impact on oil dynamics remains limited, even as it raises longer-term questions about the cohesion of the producer alliance.

Speaking to ET Now, Orton emphasized that the current geopolitical backdrop, particularly tensions around the Strait of Hormuz, continues to dominate oil fundamentals far more than internal OPEC politics.

UAE move: Long-term signal, limited near-term disruption
On the UAE’s stance and its implications for global crude supply, Orton said: “Right now for the shorter term, it really does not mean anything because while longer term it just means more supply is likely to come online but we are not in a normal situation anymore because of the blockade of the Strait of Hormuz. So really until there is clarity with respect to what is going to happen between the US and Iran and until we start to see an easing of the blockade in the strait, there is going to be constraints for oil and there is only so much that the UAE can pump to begin with.””So, this does not come as that much of a surprise because frankly the UAE has really been trying to push more production over the past few years. They have always been upset and violated some of the curbs that they have had put in place. But if anything, it signals that there is fractures within OPEC as well. And so, it kind of questions what the future of OPEC is going to look like, what its efficacy could look like, and all of that longer term probably means that we will be well supplied in the longer term once we have a resolution and get back to some sort of normalcy, but that is going to take a lot of time,” he added.

While acknowledging the symbolic significance of the UAE’s position, Orton suggested the real constraint on supply remains geopolitical, not institutional.Markets after a 10% rally: Selectivity becomes key
With global equities already up nearly 10% from March lows, Orton cautioned that the “easy money” phase may be behind investors, even though fundamentals remain solid.“Markets have moved up at least about 10% including India at an index level, but what next really?” ET Now asked.

Orton responded: “These gains have been encouraging and I would argue that they are backed by solid fundamentals particularly in the US equity market where you have had resiliency on the overall economy and the consumer despite increased inflation and energy prices and corporate earnings have been incredibly strong. We are looking at record profit margins on the S&P 500. You are seeing smallcap earnings tick up. You have seen strong bank earnings. We are getting strong earnings from semiconductor companies, from industrials. So, the backdrop is very-very positive.”

However, he stressed that the next phase will be driven less by broad market beta and more by stock selection.

“The key going forward is going to be selectivity and really leaning into bifurcations that we are seeing take place,” he said.

He highlighted growing divergence across sectors:

“Because of the disruptions that have happened in the Middle East, there is going to be winners and losers with respect to those who are the energy haves and the have nots versus those who have pricing power versus those who do not have pricing power.”

Orton also pointed to a shift in diversification thinking:

“There is going to be increased correlation between fixed income and equities making it a little bit harder to get that traditional stock bond diversification.”

His preferred strategy: diversification within equities rather than across asset classes.

He added: “I think that means that you want to continue to lean a little bit more heavily into the AI capex beneficiary complex. I am incredibly convicted based on earnings and conversations I have had with management teams that this trade is here to stay.”

He also recommended selective exposure to energy and healthcare:

“Buying energy on dips makes sense especially for higher quality low leverage energy companies and then also looking to say biotechnology which is an area within healthcare that has underperformed the overall markets really from a global perspective and trying to invest in places where there is going to be more M&A activity going forward.”

Fed outlook: No major shift expected despite leadership change
With an FOMC meeting underway and speculation around a leadership transition at the Federal Reserve, Orton downplayed expectations of an immediate policy pivot.

“I do not think we are going to see a policy shift. Inflation is really going to handcuff Warsh when he comes in because the economy like I have mentioned before has been incredibly resilient,” he said.

He added that persistent inflation limits the scope for near-term easing:

“When you have increased inflationary pressures without an end in sight with respect to what is causing those inflationary pressures, it is really hard to convince a broader committee who is already biased to hold to move towards easing.”

However, he left room for medium-term easing possibilities:

“I do think there will be potential to ease later and based on Warsh’s congressional testimony, some of the moves he will make over the medium to long term will be a little bit more dovish for the markets rather than hawkish.”

For markets, the key takeaway from the current Fed meeting is signalling rather than action.

“To me the meeting that we have later on today your time is going to be more signalling, seeing if Powell reiterates a lot of what he talked about during the last meeting and really get a better sense for how the broader committee is thinking about things,” Orton said.

Markets: Earnings over geopolitics—but risks remain
On whether markets are now more focused on earnings than geopolitical shocks such as OPEC-related developments, Orton struck a balanced tone.

“The markets want to get past geopolitical events. I am not so sure they can fully get past geopolitical events because there is going to be continued upward pressure on oil prices until there is a resolution,” he said.

He noted that futures pricing already reflects prolonged uncertainty:

“When you look at back-end futures as well, they have continued to rise which really signals that there is a protracted evolution to this being baked in by the market.”

At the same time, micro-level drivers are increasingly dominant:

“Beneath the surface there was a massive move in semiconductor stocks and anything related to AI because of a story around OpenAI and questioning whether they could fulfil all of the promises that they made with respect to spending and data centre spending.”

Looking ahead, earnings will remain a major catalyst:

“We have 11 trillion plus dollars of market capitalisation reporting earnings results just tomorrow evening, that is going to be a significant event for the market. So, earnings are going to be in focus, but there is always the risk that no matter how good earnings are, what happens in the Middle East could derail some of that simply because of the unknown factor of just how volatile things are.”