Opec to convene in Abu Dhabi amid worries over surging US crude supplies

Opec, which meets on Sunday for its Joint Monitoring Ministerial Committee meeting in Abu Dhabi, will look to reinvent itself as it finds itself outpaced by surging US oil supply and a tighter spare capacity environment.

Data from the US Energy Information Administration showed US supply had swung up to 11.6 million barrels per day last week, eclipsing Saudi Arabia’s 10.7 million bpd and Russia’s own 11.4 million bpd.

The added oil barrels and uncertainty have plunged the markets into bearish territory, with Brent falling to $69 per barrel on Friday.

Much of the US supply, which has revived following the end to the three-year slump in oil markets, is on top of the production for domestic consumption, worrying Opec and its ally Russia.

The US administration under President Donald Trump had earlier exerted pressure on Opec's de-facto leader Saudi Arabia and its allies to pump more crude to push the prices down, which had breached $80 per barrel level ahead of the country's midterm elections.

Saudi Arabia has already expended its production capacity, stretching to limits, with the market getting tighter leading up to the US sanctions against Iran, which came into effect on November 5.

Waivers to Tehran’s key eight buyers, a measure the US has offered as means to monitor the slow withdrawal of Iranian barrels from the market in six months, does not come as a panacea to the markets, least of all to Opec.

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Iranian oil exports could halve in 2019 as US focuses on waivers

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With Iranian crude expected to halve from current levels of 1.6 million bpd to 800,000 bpd by mid-2019, according to consultancy Facts Global Energy, Opec finds it difficult to compete with a surging US crude supply.

Under the circumstances, Saudi Arabia may consider forging a closer bond with Russia, using their collective 20 million bpd plus output as a bulwark against
US shale.

Opec and its allies led by Russia, have reversed an earlier crude restriction pact by increasing supply since May this year to moderate prices, were widely expected to sign a charter institutionalising their co-operation during their meeting in Vienna next month.

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.”

Opec to convene in Abu Dhabi amid worries over surging US crude supplies

Data from the US Energy Information Administration showed US supply have swung up to 11.6 million barrels per day last week