Oil prices remained volatile on Monday slumping in early trading, then paring losses before dipping again amid a tight market, growing concerns about a slowdown in demand in China and the possibility of Iranian crude coming back to the market.
Brent, the global benchmark for two thirds of the world's oil, was trading 1.09 per cent lower at $95.67 a barrel at 7.45pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.85 per cent at $90 a barrel.
"There remain many factors influencing the oil price right now from a tight market to a diminishing growth outlook and a potential Iran nuclear deal," said Craig Erlam, a senior market analyst at Oanda.
Oil prices had slumped earlier due to "lacklustre Chinese data last week" that showed demand concerns continue to outweigh any supply-side issues, despite warnings around upcoming tightness in the market from the new Opec secretary general, Emirates NBD’s Mena economist Daniel Richards said.
In an interview with Bloomberg last week, Opec secretary general Haitham Al Ghais said global oil markets remained at risk of a supply squeeze.
China, the world's biggest importer of crude, also cut lending rates last week to revive demand as its economy slowed unexpectedly in July, with factory and retail activity slumping under Beijing's “zero-Covid” policy.
“Traders believe that slower economic growth will adversely influence the prices,” said Naeem Aslam, chief market analyst at Avatrade.
“Traders are also paying attention to the power supply situation in China, and power restrictions in some regions could affect economic activity as China’s south-western Sichuan [province] began limiting electric power supply.”
The prospect of Iranian crude returning to the market is also being closely watched by traders.
The leaders of the US, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal during a call on Sunday.
The EU and US last week said they were studying Iran's response to what the EU has called its “final” proposal to revive the deal, under which Tehran curbed its nuclear programme in return for sanctions relief.
A potential deal would help Iran to pump more oil into the market and ease the supply crunch caused by the Ukraine conflict.
The prospects of Iran returning to market could become clearer over the course of this week "although that has been suggested many times this year and yet here we are. We could see WTI remain choppy around $90 and Brent hover above $92 for a little while longer yet," Mr Erlam said.
Mr Aslam said he believed the momentum for a three-day rally last week had waned “as there are more bears in the market than bulls”.
“Investors believe that if the Fed continues on its hawkish monetary policy, it will create more obstacles for US economic growth, and that could negatively affect oil demand.”
Federal Reserve chairman Jerome Powell is expected to speak at the US central bank’s annual symposium from Thursday to Saturday this week in Jackson Hole, Wyoming, and possibly indicate the pace of future interest rate increases.
The Fed's next meeting is set for September 20 and September 21, where it may raise interest rates by 75 basis points for a third consecutive time as it attempts to arrest inflation, which is running at a four-decade high.
The US dollar index hit a new five-week high on Monday after Fed officials, including Federal Reserve Bank of Richmond president Thomas Barkin, indicated that the central bank is expected to continue with its aggressive monetary tightening policy before the Jackson Hole symposium.
At the last meeting in July, when the central bank approved a 0.75 percentage point rate increase, Fed officials indicated they were likely to press forward with the rate increases to bring down inflation to their preferred 2 per cent target.
“The dollar bulls are back in force,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
“The stronger dollar is not only a headache for the rest of the world, it is also a headache for the US companies as the revenues they make outside the US lose value when converted back to US dollars.”
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.”
UAE currency: the story behind the money in your pockets
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Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
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