Oil prices rallied on Monday after top crude exporter Saudi Arabia said it would extend its voluntary output cut of 1 million barrels per day until August.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.91 per cent higher at $76.10 a barrel at 4.16pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 1.10 per cent at $71.42 a barrel.
The kingdom will extend the production cut, which was initially announced for July, for another month, the Saudi Press Agency reported on Monday, citing an official source from the Ministry of Energy.
Saudi Arabia's production for August will be about 9 million bpd and "this additional voluntary cut comes to reinforce the precautionary efforts made by Opec+ countries with the aim of supporting the stability and balance of oil markets", the source said.
The kingdom will likely choose to prolong its additional cuts over "much of the rest of 2023", Emirates NBD economists said in a research note on Monday.
The Opec+ alliance of 23 oil-producing countries plans to stick to its existing output cuts until the end of 2024.
The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a 2 million bpd reduction agreed last year and voluntary cuts of 1.66 million bpd announced in April.
Last Friday, oil prices posted their fourth straight quarterly loss on a weakening fuel demand outlook and as Russian crude supply remains steady despite Western sanctions.
The US Department of Energy plans to solicit more oil purchases this week as part of a drive to refill the Strategic Petroleum Reserve, according to a Bloomberg report.
The US previously said it would buy 12 million barrels to help replenish the reserve following the largest ever drawdown from the emergency stockpiles last year amid the turmoil from Russia’s invasion of Ukraine.
Separately, a key inflation measure monitored by the US Federal Reserve showed prices cooling in May, in a sign that the central bank's interest rate increases are easing pressures.
The price consumption expenditures index increased 3.8 per cent on an annual basis in May, down from 4.3 per cent a month in April.
The core PCE index, which excludes food and energy, rose 4.6 per cent on an annual basis, after a 4.7 per cent yearly increase the month before.
“The focus this week will be on the release of the minutes of the June [Federal Open Market Committee] meeting on Wednesday and then the non-farm payrolls data on Friday,” Emirates NBD said.
US employers likely added 225,000 jobs last month, lower than the 339,000 recorded in May, with the unemployment rate expected to ease back to 3.6 per cent from 3.7 per cent, the UAE-based lender said.
Earlier this month, the Fed hit pause on raising interest rates for the first time since it started its monetary tightening cycle in March 2022 as it assesses the impact on the economy.
However, the central bank signalled it would resume raising rates again this year if needed. Its next meeting will be on July 25 and July 26.
Meanwhile, factory activity growth in China, the world’s second largest economy and top crude importer, slowed in June.
The Caixin/S&P Global manufacturing purchasing managers' index (PMI) eased to 50.5 last month from 50.9 in May. The 50-point index mark separates expansion from contraction.
After rising at the quickest rate in 11 months in May, Chinese manufacturing output expanded only slightly in June.
However, a back-to-back rise in total new order volumes led companies to expand their purchasing activity again last month, the survey found.
“This in turn contributed to a further increase in inventories of inputs, though the rate of accumulation was only marginal," it said.
More from Rashmee Roshan Lall
The bio
Favourite book: Peter Rabbit. I used to read it to my three children and still read it myself. If I am feeling down it brings back good memories.
Best thing about your job: Getting to help people. My mum always told me never to pass up an opportunity to do a good deed.
Best part of life in the UAE: The weather. The constant sunshine is amazing and there is always something to do, you have so many options when it comes to how to spend your day.
Favourite holiday destination: Malaysia. I went there for my honeymoon and ended up volunteering to teach local children for a few hours each day. It is such a special place and I plan to retire there one day.
MATCH INFO
Who: UAE v USA
What: first T20 international
When: Friday, 2pm
Where: ICC Academy in Dubai
UAE currency: the story behind the money in your pockets
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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.”
UAE currency: the story behind the money in your pockets
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