Opec+ is cutting 7.2 million bpd from the market, supported by a continued voluntary cut commitment of 1 million bpd by Saudi Arabia. Reuters
Opec+ is cutting 7.2 million bpd from the market, supported by a continued voluntary cut commitment of 1 million bpd by Saudi Arabia. Reuters
Opec+ is cutting 7.2 million bpd from the market, supported by a continued voluntary cut commitment of 1 million bpd by Saudi Arabia. Reuters
Opec+ is cutting 7.2 million bpd from the market, supported by a continued voluntary cut commitment of 1 million bpd by Saudi Arabia. Reuters

Energy

Opec expects oil demand to recover in the second half of 2021

Opec production fell 650,000 bpd to average 24.85 million bpd in February

Jennifer Gnana
Jennifer Gnana

March 11, 2021

  • English
  • Arabic

Opec expects demand for oil to rise in the second half of this year, driven by a broader global economic recovery, it said in its latest monthly market report.

Oil demand is projected to rise by 5.9 million barrels per day, with total consumption hitting 96.3 million bpd in 2021, Vienna-based Opec said in the report released on Thursday.

Estimates for the first half of the year were adjusted lower due to extended measures to control the spread of Covid-19 in parts of Europe as well as to account for higher unemployment rates in the US.

"At the same time, 2H21 [second half of 2021] oil demand was adjusted higher to reflect an expectation of a solid economic recovery and the positive impact from vaccination rollouts," Opec said.

Demand from countries that are not part of the 37-member Organisation for Economic Co-operation and Development was encouraging, with "better-than-expected industrial fuel demand".

Opec revised it by 100,000 bpd on an annualised basis, supported by robust growth in the Middle East.

On the supply side, Opec production fell 650,000 bpd to average 24.85 million bpd in February, according to secondary sources cited by the group.

Opec+, the super group, which includes non-member producers including Russia agreed earlier this month to extend the current level of cuts into the next month.

The group will cut 7.2 million bpd from the market, supported by a continued voluntary commitment of 1 million bpd by Saudi Arabia.

The kingdom delivered its outsized cut, Opec data showed. Saudi Arabia's production stood at 8.15 million bpd in February, compared with 9.08 million bpd in the prior month.

Oil prices have surged amid tightening supply from Opec+ countries. Brent, the international benchmark, and West Texas Intermediate, which tracks US crude grades, are around 30 per cent higher than at the start of the year.

Brent was up 1.58 per cent, trading at $68.97 per barrel at 5.33pm UAE time on Thursday. WTI was up 1.44 per cent at $65.37 per barrel.

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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.”

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