Opec says it expects higher crude prices next year but is yet to be ready to cut its output and risk allowing rivals to grab market share.
“We are following the market day in day out, month in month out. We see that 2016 is really producing some positive results,” said Abdalla El Badri, Opec’s secretary general, at the Adipec oil and gas conference in Abu Dhabi yesterday.
The 12-member organisation, which produces about 40 per cent of the world's crude oil, meets next on December 4 in Vienna. It will decide on its output policy, which is focused on protecting market share rather than propping up prices by reducing its output.
Opec had kept its production ceiling at 30 million barrels per day at its meeting in June.
“Opec is not really a swing producer as such,” said Mr El Badri. “We always protect our share in the market. Now we are 40 per cent. It is not possible to go lower than 40 per cent.”
The oil supply glut, weaker demand in Asia and Europe, and a strong US dollar has slashed the price of the crude benchmark Brent to less than US$50 per barrel from more than $100 per barrel last year.
Mr El Badri blamed non-Opec producers for the oversupply and criticised them for not heeding Opec calls for coordinating production to help boost prices.
“The non-Opec supply is the main reason for oversupply in the market,” said Mr El Badri. “We have to share the burden between Opec and non-Opec [producers].”
Opec’s policy of protecting its market share has squeezed out high-cost producers such as shale oil companies in the United States, which have reduced their production this year.
US shale oil production is forecast to drop for the eighth month in a row to 4.95 million bpd next month, 118,000 bpd less than this month, said the US Energy Information Administration this week.
Growth in non-Opec oil supply could stop by 2020 if spending cuts continued to hit the industry, warned the International Energy Agency, the Paris-based energy adviser to industrialised nations.
The oil price rout had led to a 20 per cent drop in exploration and production investment to $130 billion this year from last year, said Mr El Badri.
Non-Opec oil supply is forecast to fall by 0.13 million bpd next year, according to Opec estimates. The demand for Opec crude next year is forecast at 30.8 million bpd, 1.2 million bpd more than this year’s demand.
Opec produced 31.57 million bpd in September, above its official ceiling, mostly owing to higher production in Iraq, Nigeria and the UAE, the organisation said in its October monthly report, citing secondary sources.
Next year, global oil demand is set to rise by 1.25 million bpd to reach 94.11 million bpd, according to Opec estimates.
dalsaadi@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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