Opec+ could consider drawing back an additional 500,000 barrels per day from the markets to balance the oil markets, which have seen their worst rout in over a year due to the continued spread of the deadly coronavirus, say analysts.
The group, which is led by Saudi Arabia and Russia could explore further deepening of cuts to stop the slide in oil prices and are likely to present a more unified front in agreeing to further restrictions. A joint technical committee, comprising Algeria - which holds the Opec presidency this year - and Saudi Arabia, Russia, the UAE, Iraq, Kazakhstan, Kuwait and Nigeria will meet today and tomorrow at the Austrian capital.
The group is set to discuss a range of measures, including slashing production to stabilise the oil markets that have seen the worst rout in over a year due to the continued spread of the deadly coronavirus.
"We believe Opec+ will announce an additional production cut of at least 500,000 bpd for the second quarter, eventually extending the cuts until the end of the year, with a review at the next ordinary meeting in June," said Giovanni Staunovo, commodity analyst at UBS.
With prices declining nearly 20 per cent since early January, Russia's reticence to embrace additional cuts has given way to calls for decisive action.
"With Brent now trading below $60 per barrel, we expect the group to speak with a single voice once again," said Mr Staunovo.
Brent, which saw its largest slide for January since 1991, was up 0.74 per cent trading at $54.86 per barrel at 3.35pm UAE time, while West Texas Intermediate gained 1.53 per cent and was trading at $50.89 per barrel.
Russian President Vladimir Putin and Saudi Arabia's King Salman have confirmed their "readiness to continue co-operation within Opec+", following a rare phone call between the two leaders yesterday, according to a statement from the Kremlin.
Opec+ began the year with production cuts of 1.7 million bpd, with Saudi Arabia volunteering to cut an additional 400,000 bpd.
The group was set to meet in early March for a review of the pact. An Opec spokesman told The National that no decision has been taken to cancel the meetings set for March 5 and 6.
JBC Energy said in a note on Tuesday that reports of a possible 500,000 bpd cut by Opec had "failed to support prices".
"They gained back some ground in today’s early morning trading," the consultancy said.
"Expectation that Opec+ will react properly to the coronavirus shock will likely keep WTI crude bid near the $50 a barrel," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
"But the upside potential could remain limited given the uncertainties regarding the magnitude of the shock on future demand and solid net long positioning in speculative trades," she added.
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.”
