Gas has performed worse than any other exchange-traded commodity this year, raising concerns that oil, its big brother, could have further to fall.
While crude is 39 per cent higher than at the start of the year, gas on the New York Mercantile Exchange (NYMEX) has fallen 36 per cent, with many observers believing that it will head lower.
Data from the US Commodity Futures Trading Commission show that the world's biggest hedge funds have collectively purchased US$5.8 billion of derivatives that will be in the money if gas prices fall - their largest position against NYMEX gas futures in seven months.
"There's too much supply and not enough demand," Michael Hiley, a head trader at Newedge USA in New York, told Bloomberg.
"Storage is going to be like a big balloon blown up and you can't add any more air."
Yesterday, gas was priced at about $3.60 per million British thermal units (Btu) in New York, equivalent to a crude price of $21.60 per barrel on a day when the actual price of crude rose above $63 per barrel.
In April, US gas prices touched a six-year low of $3.16 per million Btu, on concerns that a glut of supplies due to ramped-up production last year might persist.
Those concerns have not gone away as the US recession drags on, pushing down industrial gas demand.
"There's such a huge volume of gas in storage, and it's not getting out at a decent rate," said Dewey Bartlett, the chairman of the National Stripper Well Association, a US small energy producers' trade group.
The outlook for energy demand in the world's biggest economy has also weighed on crude prices recently.
They have slid 15 per cent from the eight-month high of nearly $73 per barrel they reached last month, as traders who had previously looked for economic green shoots turned their attention to gloomy US employment data.
New York crude has edged up in the past two days, bolstered by a report showing strong economic growth in China.
But any further bad news about the US, European or Japanese economies could soon turn the tables, analysts said.
"We're in a situation where US consumers aren't consuming and Chinese manufacturers get hurt. Economists are looking for growth in all the wrong places," Philip Verleger, a professor at the University of Calgary, in Canada, told Bloomberg.
Prof Verleger, who also heads his own consulting firm, predicted that crude could collapse to $20 per barrel this year, as inventories rise before winter.
"Global refinery runs are going to be much lower in the fall," he said. "If the recession continues and it's a warm winter, it's going to be devastating."
That would bring oil roughly into line with gas, a fuel with which it competes in the industrial sector.
Tim Evans, an analyst at Citi Futures Perspective in New York, said crude could fall below $50 unless demand picked up.
There are signs that OPEC producers, which are watching the market ahead of their Sept 9 meeting, are taking steps to improve compliance with the record 4.2 million barrels per day of output cuts pledged last year. The group has said it wants crude to recover to about $75 per barrel.
OPEC will trim shipments by 0.8 per cent in the four weeks ending August 1, Oil Movements, the tanker tracker, said yesterday. Shipments from the Middle East would fall by 1.6 per cent, it added.
According to OPEC data, members' compliance with the cuts slipped last month to 72 per cent from 75 per cent in May.
tcarlisle@thenational.ae
Pakistan v New Zealand Test series
Pakistan: Sarfraz (c), Hafeez, Imam, Azhar, Sohail, Shafiq, Azam, Saad, Yasir, Asif, Abbas, Hassan, Afridi, Ashraf, Hamza
New Zealand: Williamson (c), Blundell, Boult, De Grandhomme, Henry, Latham, Nicholls, Ajaz, Raval, Sodhi, Somerville, Southee, Taylor, Wagner
Umpires: Bruce Oxerford (AUS) and Ian Gould (ENG); TV umpire: Paul Reiffel (AUS); Match referee: David Boon (AUS)
Tickets and schedule: Entry is free for all spectators. Gates open at 9am. Play commences at 10am
Gran Gala del Calcio 2019 winners
Best Player: Cristiano Ronaldo (Juventus)
Best Coach: Gian Piero Gasperini (Atalanta)
Best Referee: Gianluca Rocchi
Best Goal: Fabio Quagliarella (Sampdoria vs Napoli)
Best Team: Atalanta
Best XI: Samir Handanovic (Inter); Aleksandar Kolarov (Roma), Giorgio Chiellini (Juventus), Kalidou Koulibaly (Napoli), Joao Cancelo (Juventus*); Miralem Pjanic (Juventus), Josip Ilicic (Atalanta), Nicolo Barella (Cagliari*); Fabio Quagliarella (Sampdoria), Cristiano Ronaldo (Juventus), Duvan Zapata (Atalanta)
Serie B Best Young Player: Sandro Tonali (Brescia)
Best Women’s Goal: Thaisa (Milan vs Juventus)
Best Women’s Player: Manuela Giugliano (Milan)
Best Women’s XI: Laura Giuliani (Milan); Alia Guagni (Fiorentina), Sara Gama (Juventus), Cecilia Salvai (Juventus), Elisa Bartoli (Roma); Aurora Galli (Juventus), Manuela Giugliano (Roma), Valentina Cernoia (Juventus); Valentina Giacinti (Milan), Ilaria Mauro (Fiorentina), Barbara Bonansea (Juventus)
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Director: Shady Ali
Cast: Boumi Fouad , Mohamed Tharout and Hisham Ismael
Rating: 3/5
If you go
The flights
Emirates (www.emirates.com) and Etihad (www.etihad.com) both fly direct to Bengaluru, with return fares from Dh 1240. From Bengaluru airport, Coorg is a five-hour drive by car.
The hotels
The Tamara (www.thetamara.com) is located inside a working coffee plantation and offers individual villas with sprawling views of the hills (tariff from Dh1,300, including taxes and breakfast).
When to go
Coorg is an all-year destination, with the peak season for travel extending from the cooler months between October and March.
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.”