As oil prices tumble, Opec countries meet in Vienna on December 6.
Before that, Russian President Vladimir Putin, Crown Prince Mohammed bin Salman of Saudi Arabia, and US President Donald Trump will meet at the G20 gathering in Argentina next week, along with Saudi energy supremo Khalid Al Falih and Russian oil czar Alexander Novak. The two key influencers will be elsewhere: supply and demand.
The current slump should not come as a shock. In the past two decades, something like this drop, down 30 per cent in less than 40 days, has happened six times before. As oil prices were ascending above $86 per barrel in early October, they were already beginning to look unsustainable. Brent crude fell below $60 on Friday.
The current drop is the market’s sudden realisation of what was already apparent: that high prices were sowing the seeds of their own destruction. Chinese demand has been slowing, amid some general signs of economic weakness. Oil prices in local currency terms had already reached record levels in important consuming countries such as India and Turkey. Demand destruction is not yet with us, but it was clearly looming.
The supply side has been comparably strong. In the middle of the year, the market seemed headed for shortage. The Opec-led production cuts had been more successful than expected, compounded by Venezuela’s economic collapse and harsh words from Washington about aiming to drive Iranian oil exports to zero via sanctions.
Saudi Arabia ramped up production pre-emptively as US president pressed on with his twitter attacks on Opec. Its November output is expected to be at an all-time record of 10.8 million to 10.9 million bpd. But the American decision to issue waivers to eight countries, two of which had already cut their oil imports from Iran almost to nothing, changed the narrative. Russia is playing coy on a return to production cuts; it may participate again, but the successful Opec+ structure has been disrupted.
The US itself is again the biggest contributor to a supply glut. Despite infrastructure constraints, year-on-year production growth in August was the highest ever, bigger even than in the boom years of 2011-14. Four new pipelines will open from West Texas’s Permian basin next year and three more in 2020, releasing a further flood and raising the prices realised by producers in the region, encouraging them to drill more. Net American oil imports next year could be edging close to zero for the first time since the 1940s.
Mr Trump is apparently making a cold political calculation in his calls for lower oil prices. The main producing states are almost all reliably Republican: Texas, Oklahoma, Alaska, North Dakota, Wyoming. Even though Texas these days is more of a battleground, the remarkably unlikeable Ted Cruz still beat rising Democrat star Beto O’Rourke in the latest senatorial elections.
As the US moves closer to self-sufficiency, the impact of lower oil prices on the economy overall is less clear than it used to be – it is probably close to neutral in the longer term. But most Americans benefit directly from lower oil prices, especially in the swing rust-belt states.
There are some important lessons for the major oil producers from this episode. Consumers do not have the tolerance for very high prices that they showed in the first decade of this century. India will be the key global source of future demand growth, but it is not the fuel-guzzling Chinese juggernaut of 2003-08. This will become ever more apparent as electric vehicles and liquefied natural gas-propelled ships gain momentum.
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Conversely, despite the International Energy Agency’s frequent warnings of under-investment, oil production outside Opec remains extremely robust. This is mainly down to the United States. Opec’s targeting of unsustainable prices has built up a formidable competitor. Once the well-pads and pipelines and gas gathering systems are in place, American production will be able to grow even at lower prices and even as the “sweet spots” in the shales are tapped.
The major international oil companies have also trimmed costs during the 2014-17 slump, making deepwater developments viable again, with Guyana the most striking new area. The recent spike in prices did not live long enough to disturb their discipline.
While prices could well fall further from here in the near term, they will likely recover somewhat next year. The US will continue tightening the screws on Tehran, though Iran still has escape routes. If prices stay lower, it will encourage demand, though contending with headwinds of a trade war, Brexit and an economic expansion running out of puff.
The year 2020 will be interesting. A further flood of very light US oil will meet a market crying out for a heavier diet, of crudes suitable for making diesel and jet fuel, exacerbated by the regulations on shipping fuel that come into effect at the start of that year. The Middle East and Russia are the main suppliers of such grades of oil. Despite a market well supplied overall, refineries will have to work hard to spin straw into gold.
Abu Dhabi’s decision to expand its production capacity significantly by 2020 and again by 2030 against the longer-term backdrop, is correct. The market will need its crude and it will gain some paces on its competitors. Since short-lived attempts to keep prices above $80 to $100 per barrel have proved self-defeating, major producers do better to gain market share at moderate prices – and tailor their budgets accordingly.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Specs
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Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
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Family reunited
Nazanin Zaghari-Ratcliffe was born and raised in Tehran and studied English literature before working as a translator in the relief effort for the Japanese International Co-operation Agency in 2003.
She moved to the International Federation of Red Cross and Red Crescent Societies before moving to the World Health Organisation as a communications officer.
She came to the UK in 2007 after securing a scholarship at London Metropolitan University to study a master's in communication management and met her future husband through mutual friends a month later.
The couple were married in August 2009 in Winchester and their daughter was born in June 2014.
She was held in her native country a year later.
10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
SM Town Live is on Friday, April 6 at Autism Rocks Arena, Dubai. Tickets are Dh375 at www.platinumlist.net
Specs
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Specs
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It's Monty Python's Crashing Rocket Circus
To the theme tune of the famous zany British comedy TV show, SpaceX has shown exactly what can go wrong when you try to land a rocket.
The two minute video posted on YouTube is a compilation of crashes and explosion as the company, created by billionaire Elon Musk, refined the technique of reusable space flight.
SpaceX is able to land its rockets on land once they have completed the first stage of their mission, and is able to resuse them multiple times - a first for space flight.
But as the video, How Not to Land an Orbital Rocket Booster, demonstrates, it was a case if you fail, try and try again.
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.”
THE SPECS
Range Rover Sport Autobiography Dynamic
Engine: 5.0-litre supercharged V8
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The bio
Academics: Phd in strategic management in University of Wales
Number one caps: His best-seller caps are in shades of grey, blue, black and yellow
Reading: Is immersed in books on colours to understand more about the usage of different shades
Sport: Started playing polo two years ago. Helps him relax, plus he enjoys the speed and focus
Cars: Loves exotic cars and currently drives a Bentley Bentayga
Holiday: Favourite travel destinations are London and St Tropez
Who is Allegra Stratton?
- Previously worked at The Guardian, BBC’s Newsnight programme and ITV News
- Took up a public relations role for Chancellor Rishi Sunak in April 2020
- In October 2020 she was hired to lead No 10’s planned daily televised press briefings
- The idea was later scrapped and she was appointed spokeswoman for Cop26
- Ms Stratton, 41, is married to James Forsyth, the political editor of The Spectator
- She has strong connections to the Conservative establishment
- Mr Sunak served as best man at her 2011 wedding to Mr Forsyth
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
The specs
AT4 Ultimate, as tested
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