Iran warns against too much oil

Iran has warned of a worsening oil glut and predicts OPEC will urge its members to comply with their production quotas when its ministers meet on Wednesday. The second-biggest OPEC producer also said there was no need for the group to revise output targets that had remained unchanged since December 2008. "If the current oil production continues, the oil market will face an oversupply in the second half of 2010," Mohammed Ali Khatibi, the country's OPEC governor, said in remarks reported yesterday on the Iranian oil ministry website SHANA. "OPEC will ask its members to comply with their quotas until the economic crisis is over."

Last week, in the latest monthly forecast published by its Vienna-based secretariat, the oil exporters' organisation, which controls 40 per cent of the global oil supply, predicted demand for its crude this year would undershoot output by 1.5 million barrels per day (bpd). On the other hand, the secretariat also forecast a 1.7 million bpd increase in demand for OPEC crude between the second and third quarters of the year, suggesting any oversupply would be mopped up.

Iran's heightened concerns, however, highlight a question that is sure to dominate the ministerial discussions this week: how quickly will the global economy, and therefore oil demand, rebound after the year's midpoint? To be sure, demand for oil to fuel power plants in Gulf countries, including Saudi Arabia, the UAE and Kuwait, will soon increase as the region's air conditioning usage rises with the onset of summer. Slack demand for oil in developed economies, however, could offset that, while China, whose economic recovery has been heavily fuelled by fiscal stimulus, could be the wild card.

As recently as last week, Mr Khatibi was playing down the significance of the big crude oil stockpiles that continue to overhang the market. "There is some oversupply in the market, but it cannot damage the market. It can be absorbed into stocks," he said last Tuesday. OPEC said its members pumped 29.31 million bpd of crude last month, an increase of 60,000 bpd from January's levels. The group's compliance with production quotas has been slipping for the past year as oil prices have risen.

With oil above US$80 per barrel, most analysts expect a decision to leave OPEC's output ceiling unchanged. None of the group's 12 member states has called for quotas to be raised. tcarlisle@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.”

2025 Fifa Club World Cup groups

Group A: Palmeiras, Porto, Al Ahly, Inter Miami.

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Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.

Group G: Manchester City, Wydad, Al Ain, Juventus.

Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.

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