Oil prices rose last week to more than $80 per barrel for the first time since November 2014. Rather than rising on the back of strong demand growth and a positive outlook for the global economy, the recent move in prices has been catalysed by growing market anxiety over supply.
In a reversal of the glut the market endured from 2015 to 2017, there is a real risk we could enter 2019 with not enough oil to go around, setting the stage for oil prices to remain high for some time.
The most immediate source of a supply risk is Iran. US sanctions that directly target Iran’s oil exports will come into effect in early November and estimates of how much oil could be taken off the markets vary from 750,000 barrels per day to as much as 1.5 million barrels per day.
Regardless of the scale of the decline, a sizeable drop from a significant oil exporter will tighten markets in the final months of 2018 and importers will need to scramble to find replacement barrels.
The spectre of sanctions has already led importers to move away from taking cargoes from Iran and recent market surveys point to a drop in Iranian exports of more than 400,000 barrels per day in August alone. The degree of compliance by major importers of Iranian crude already appears to be high, with South Korea, the European Union and India cutting back their purchases sharply in recent months.
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The Trump White House is showing no signs of easing the economic pressure on Iran and has so far been reticent to offer waivers on sanctions to importers. Considering the hostile rhetoric traded between the presidents of both the US and Iran at the UN this month, geopolitical risks will continue to exert an upward pull on oil.
While not relaxing the pressure on Iran, President Trump has publicly criticised Opec members several times for not raising production to dampen current prices, including declaring that Opec was “ripping the world off” in front of the UN General Assembly.
Opec members did agree to raise production at their June meeting to compensate for deteriorating production in Venezuela and to put an end to the ‘over-compliance’ with their 2017 production cut agreement with other countries, notably Russia.
But so far the increase has not been large enough to cap prices and Opec countries will be wary of increasing output too much and risk pushing the market back into surplus. Within Opec there are only a few countries that have the capacity to meaningfully raise production, most prominently Saudi Arabia, which has historically claimed an ability to raise production to 12 million barrels per day compared with current levels of around 10.4 million barrels per day. Saudi Arabia has not tested sustained production at that level, however, and there is likely to be a mismatch in terms of the quality of oil it holds in reserve compared with what is actually needed in the market.
While an increase in production now could help to limit the gains in prices it could end up causing more problems further down the road. Opec’s production is currently at around 90 per cent of its total capacity, leaving it little room to adjust production upward to compensate for more unanticipated supply outages or rapid increases in demand.
But it’s not just in Opec where supply risks are exerting upward pressure on prices. In the US the rapid pace of supply growth from shale oil producers is butting up against infrastructure constraints, and Canada is also facing similar takeaway capacity issues.
High oil prices will be welcome news for the GCC’s oil and gas producers as they help shore up fiscal and external balances. But for importers oil prices around $80 per barrel are only another economic headwind to overcome in the midst of rising trade tensions and deteriorating financial conditions in several large emerging markets. One way for oil prices to fall, albeit a gloomier one, would be if disruptions to global trade sank overall commodity demand.
After several years awash in a ‘glut’ of oil, markets need to be prepared to adjust to a sustained period of tightness and endure higher prices. While expectations of oil as high as $100 per barrel are more exclamatory than realistic, sentiment may help push oil prices up from their current levels before we see any downside correction.
Tim Fox is chief economist at Emirates NBD. With inputs from Edward Bell, the director of commodity research at the bank
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Results:
Women:
1. Rhiannan Iffland (AUS) 322.95 points
2. Lysanne Richard (CAN) 285.75
3. Ellie Smart (USA) 277.70
Men:
1. Gary Hunt (GBR) 431.55
2. Constantin Popovici (ROU) 424.65
3. Oleksiy Prygorov (UKR) 392.30
MATCH INFO
Chelsea 1 (Hudson-Odoi 90 1')
Manchester City 3 (Gundogan 18', Foden 21', De Bruyne 34')
Man of the match: Ilkay Gundogan (Man City)
The Disaster Artist
Director: James Franco
Starring: James Franco, Dave Franco, Seth Rogan
Four stars
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
'Gold'
Director:Anthony Hayes
Stars:Zaf Efron, Anthony Hayes
Rating:3/5
Company%C2%A0profile
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
The specs: 2018 BMW X2 and X3
Price, as tested: Dh255,150 (X2); Dh383,250 (X3)
Engine: 2.0-litre turbocharged inline four-cylinder (X2); 3.0-litre twin-turbo inline six-cylinder (X3)
Power 192hp @ 5,000rpm (X2); 355hp @ 5,500rpm (X3)
Torque: 280Nm @ 1,350rpm (X2); 500Nm @ 1,520rpm (X3)
Transmission: Seven-speed automatic (X2); Eight-speed automatic (X3)
Fuel consumption, combined: 5.7L / 100km (X2); 8.3L / 100km (X3)
UAE currency: the story behind the money in your pockets
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.”
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
The details
Colette
Director: Wash Westmoreland
Starring: Keira Knightley, Dominic West
Our take: 3/5
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
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