Opec has maintained its outlook for oil demand this year and expects healthy oil fundamentals in the second half as the global economy continues to recover from the coronavirus pandemic.
World oil demand is projected to rise by 2.4 million barrels per day to an average of 102 million bpd, unchanged from last month’s estimate, Opec said in its monthly oil market report on Thursday.
“Prospects for healthy oil fundamentals in the second half of the year, along with the pre-emptive, proactive and precautious approach of Opec and non-Opec producing countries to assess market conditions and take necessary measures at any time and as needed, will ensure stability of the global oil market,” Opec said.
Earlier this month, the Opec+ alliance of 23 oil-producing countries agreed to stick to its current output policy, as the group’s production cuts tightened supply and pushed oil prices higher.
The decision came a day after Saudi Arabia, the world's largest oil exporter, said it would extend its voluntary oil production cut of one million bpd until September.
Oil prices recorded their biggest monthly gain since early 2022 in July amid falling crude inventories and Opec+ supply cuts, as cooling inflation eases concerns of aggressive interest rate increases by central banks.
In the OECD (Organisation for Economic Co-operation and Development) region, oil demand in 2023 is forecast to rise by 74,000 bpd to an average of 46 million bpd, it said in the report.
OECD Americas’ demand is predicted to have the largest regional rise in 2023, led by the US, on the back of recovering jet fuel demand and improvements in gasoline requirements.
In the non-OECD region, total oil demand is expected to rise by nearly 2.4 million bpd to an average of 56 million bpd in 2023.
A steady increase in transportation and industrial fuel demand, supported by a recovery in activity in China, the world’s second-largest economy and other non-OECD regions, is projected to boost demand in 2023.
In 2024, “solid global economic growth” amid continued improvements in China is expected to boost the consumption of oil.
World oil demand is anticipated to rise by 2.2 million bpd year-on-year, unchanged from the previous assessment, with total world oil demand projected to average 104.3 million bpd.
The non-OECD is set to drive growth, increasing by around 2 million bpd, with China, the Middle East and Other Asia contributing the largest share, with further support from India, Latin America, and Africa.
“China and India are anticipated to see the largest growth by country. Other regions, particularly the Middle East and Other Asia, are also expected to see considerable gains, supported by a positive economic outlook,” Opec said in the report.
Last month, the International Monetary Fund revised its earlier forecast for this year upwards, raising it by 0.2 percentage points to 3 per cent, although lower than the 3.5 per cent expansion recorded in 2022. It is projecting a similar pace of growth in 2024.
Despite the positive developments, “many challenges still cloud the horizon, and it is too early to celebrate”, said IMF chief economist Pierre-Olivier Gourinchas.
Goldman Sachs has reaffirmed its Brent forecast of $86 a barrel by December and expects prices to rise to $93 in the second quarter of 2024. The investment bank also raised its 2023 oil demand estimate by 550,000 bpd.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.45 per cent lower at $87.13 a barrel at 5.31pm UAE time on Thursday.
West Texas Intermediate, the gauge that tracks US crude, was down 0.70 per cent at $83.81 a barrel.
Production from Opec members declined by 836,000 barrels a day in July amid production cuts by Saudi Arabia and other member countries, data from the latest report shows.
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.”
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