Crude prices are likely to rebound to $100 a barrel in coming months, despite oil last week posting its seventh largest outflow since 2011, according to Swiss bank UBS.
Brent crude, the benchmark for two thirds of the world’s oil, has lost about 14 per cent of its value since hitting $98 a barrel earlier this month, amid concerns about fuel demand in China, the world’s second-largest economy and the biggest crude importer.
“We understand that the rising number of Covid cases in China and potential further mobility restrictions are a concern for investors,” UBS strategists Giovanni Staunovo and Wayne Gordon said in a research note.
But Opec crude exports fell more than 1 million barrels per day in November from last month, following the Opec+ decision to reduce the group's collective output by 2 million bpd, they said.
The group of 23 oil producing countries is set to meet on December 4 and the markets are anticipating a deeper supply cut after Saudi Arabia and other members denied the possibility of an output increase.
An EU embargo on seaborne Russian crude exports is expected to come into effect on December 5 — a day after the Opec+ meeting — along with a price cap on Russian oil.
EU governments have so far failed to agree on a price cap as Poland and several other countries insist on a cap lower than the Group of Seven (G7) advanced economies’ proposal of $65 to $70 a barrel.
Crude oil stocks in the Organisation for Economic Co-operation and Development countries are at an 18-year low and the EU ban will further tighten supply by bringing down Russian production, UBS said.
“We are somewhat surprised to have seen such a major liquidation in crude oil futures and options,” UBS strategists said.
Brent crude, which was widely expected to be within the range of $90 to $100 a barrel for the remainder of the year, is now trading at about $83 a barrel amid protests and lockdowns in China.
The drop in oil prices in reaction to China has been overblown as the effect on the country's short-term oil demand is likely to be minor, according to energy consultancy Rystad Energy.
“Several market participants also seem to believe that the G7 price cap on Russian crude and oil products — still to be approved by EU member states — will still allow the EU to import Russian barrels via tankers,” UBS said.
“But, the price cap will only allow European insurers to cover tankers transporting Russian oil if sold below the price cap level.”
The goal of the price cap is to allow countries to import Russian crude while limiting Moscow’s ability to fund its military offensive in Ukraine.
Once the EU embargoes come into effect, an additional 1.1 million bpd of crude and 1 million bpd of oil products currently going to EU countries will have to find new markets, according to the International Energy Agency.
Russian oil exports rose to 7.7 million bpd in October — up 165,000 bpd from the previous month — on higher shipments to the EU, China and India, the Paris-based agency said in its latest oil market report.
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Director: Christian Schwochow
Starring: George MacKay, Jannis Niewohner, Jeremy Irons
Rating: 3/5
Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
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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.”
