Oil registered the biggest weekly loss in almost 10 months as hopes faded that Opec will be able to implement a promised deal to cut production and ease global oversupplies. Once prices stop climbing, they (most often) correct. With little clarity about specific production cuts, prices initially rose above $50 per barrel but then started to fall. The devil is in the detail. Opec needs to provide more clarity on how the production- sharing agreement would work to bring a price recovery.
Last week, it was reported that Saudi Arabia threatened to raise output if other members didn’t agree to cuts. This was later denied by the Opec secretary general, Mohammed Barkindo. Opec failed on October 28 to agree on output quotas for member countries, which must happen before a deal can be finalised. Certainly the closer we get to an actual decision or no decision on production cuts, market nervousness will increase.
Opec alone cannot cut output to stabilise the market, as it had been warned by Ali Al Naimi, the former Saudi Arabian oil minister who masterminded the market share (pump-at-will) policy that the group adopted two years ago. He said that the situation has changed as other producers, including Russia, were talking to the group about coordinated cuts. The market will be looking at what Opec ultimately delivers versus what is required.
Within Opec, Iraq increased output by 50,000 barrels per day to a record 4.59 million barrels per day and asked to be excluded from the mandated cuts because of its war with ISIL. Libya, Nigeria and Iran, which are exempt from the production cuts deal, pumped an additional 400,000 barrels per day in October.
Saudi Arabia is motivated by its long-standing position to minimise volatility. It wants to prevent both a price collapse and a price spike. It was happy for its policy to gain market share in 2014 take shape, but now it’s more about gradual price recovery. The kingdom does want prices to recover but neither quickly enough nor high enough to encourage non-conventional (shale) suppliers to re-enter the market.
At the core of the new Saudi oil strategy is a realisation that their Opec friends and non-Opec contenders have to be conciliated more than before. The person in charge of this is Khalid Al Falih, the minister of energy. The economy has slowed since 2014, when his processor, Mr Al Naimi, opted for more of a unilateral market forces approach. While the oil price front has to be managed, Mr Al Falih is overseeing the largest part-privatisation through an IPO in history, that of the strategic oil company Saudi Aramco.
There is a widely-held assumption that US shale is economically viable around $60 per barrel. This of course remains to be seen and tested. What we do know is that before the 2014 oil price collapse, US shale output was rising by about 1 million daily barrels each year. It remains to be seen if shale output recovers in tandem with prices. That is the biggest danger to Opec.
Of concern is how much supply is out there and how much can be produced with oil prices below $50 per barrel. Brent finished last week down 8.3 per cent at $45.58, while West Texas Intermediate lost 9.5 per cent to close at $44.07.
International oil companies will probably cut investment spending by about $370 billion this year and next, according to Wood MacKenzie, just as the UAE warned that the massive number of projects being delayed because of the drop in crude prices could lay the groundwork for a future shortage. A shortage is implicitly referring to a future price spike which will be an anathema to Saudi Arabia’s balanced approach.
The global oil industry has postponed a number of projects, raising the risk of a slump in output and a potential shortfall in supply, Suhail Al Mazrouei, the Minister of Energy of the UAE, said recently. The International Energy Agency, for its part, estimates spending in exploration and production fell 25 per cent in 2015 and will decline by the same amount this year, cutting more than $300bn in investment. The IEA does not expect an investment recovery to take place in 2017. There is some logic to the above expectation: oil will have to stay for a few quarters at just above $50 per barrel for many oil majors and their respective boards to decide making an investment decision to expand output. As long as oil keeps on dipping below $50, the longer will firms keep on postponing investments.
However there are those who are forecasting that oil output will match prices and that as oil recovers to $60 in the second half of 2017 from now and to $65 to $70 three quarters afterwards, that there will be enough supply incentives for firms to invest in parallel.
Oil prices will recover, as mentioned in previous articles, but it won't be a straight upward line as volatility prevails.
We are in a new supply-demand paradigm which requires testing. Saudi Arabia is involved in a delicate balancing act. The hedge fund community still has a strong bullish bias towards oil on the expectation the supply-demand balance will tighten and lift prices during 2017.
Crude prices are likely to remain under pressure in the short term until more of the record net long positions have been liquidated by hedge funds, or until Opec can provide convincing details of how the output agreement will work. Volatility ensues.
John Sfakianakis is the director of economic research at the Gulf Research Centre in Riyadh
business@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.”
The specs
Price, base / as tested Dh1,100,000 (est)
Engine 5.2-litre V10
Gearbox seven-speed dual clutch
Power 630bhp @ 8,000rpm
Torque 600Nm @ 6,500rpm
Fuel economy, combined 15.7L / 100km (est)
The%20specs
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Other must-tries
Tomato and walnut salad
A lesson in simple, seasonal eating. Wedges of tomato, chunks of cucumber, thinly sliced red onion, coriander or parsley leaves, and perhaps some fresh dill are drizzled with a crushed walnut and garlic dressing. Do consider yourself warned: if you eat this salad in Georgia during the summer months, the tomatoes will be so ripe and flavourful that every tomato you eat from that day forth will taste lacklustre in comparison.
Badrijani nigvzit
A delicious vegetarian snack or starter. It consists of thinly sliced, fried then cooled aubergine smothered with a thick and creamy walnut sauce and folded or rolled. Take note, even though it seems like you should be able to pick these morsels up with your hands, they’re not as durable as they look. A knife and fork is the way to go.
Pkhali
This healthy little dish (a nice antidote to the khachapuri) is usually made with steamed then chopped cabbage, spinach, beetroot or green beans, combined with walnuts, garlic and herbs to make a vegetable pâté or paste. The mix is then often formed into rounds, chilled in the fridge and topped with pomegranate seeds before being served.
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
Our family matters legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
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COMPANY%20PROFILE
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The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
The biog
Name: Atheja Ali Busaibah
Date of birth: 15 November, 1951
Favourite books: Ihsan Abdel Quddous books, such as “The Sun will Never Set”
Hobbies: Reading and writing poetry
Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
Key figures in the life of the fort
Sheikh Dhiyab bin Isa (ruled 1761-1793) Built Qasr Al Hosn as a watchtower to guard over the only freshwater well on Abu Dhabi island.
Sheikh Shakhbut bin Dhiyab (ruled 1793-1816) Expanded the tower into a small fort and transferred his ruling place of residence from Liwa Oasis to the fort on the island.
Sheikh Tahnoon bin Shakhbut (ruled 1818-1833) Expanded Qasr Al Hosn further as Abu Dhabi grew from a small village of palm huts to a town of more than 5,000 inhabitants.
Sheikh Khalifa bin Shakhbut (ruled 1833-1845) Repaired and fortified the fort.
Sheikh Saeed bin Tahnoon (ruled 1845-1855) Turned Qasr Al Hosn into a strong two-storied structure.
Sheikh Zayed bin Khalifa (ruled 1855-1909) Expanded Qasr Al Hosn further to reflect the emirate's increasing prominence.
Sheikh Shakhbut bin Sultan (ruled 1928-1966) Renovated and enlarged Qasr Al Hosn, adding a decorative arch and two new villas.
Sheikh Zayed bin Sultan (ruled 1966-2004) Moved the royal residence to Al Manhal palace and kept his diwan at Qasr Al Hosn.
Sources: Jayanti Maitra, www.adach.ae
COMPANY%20PROFILE
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North Pole stats
Distance covered: 160km
Temperature: -40°C
Weight of equipment: 45kg
Altitude (metres above sea level): 0
Terrain: Ice rock
South Pole stats
Distance covered: 130km
Temperature: -50°C
Weight of equipment: 50kg
Altitude (metres above sea level): 3,300
Terrain: Flat ice
