Opec+, the alliance between Opec and non-Opec producers vowed a proactive response in rebalancing oil markets. Karen Bleier / AFP
Opec+, the alliance between Opec and non-Opec producers vowed a proactive response in rebalancing oil markets. Karen Bleier / AFP
Opec+, the alliance between Opec and non-Opec producers vowed a proactive response in rebalancing oil markets. Karen Bleier / AFP
Opec+, the alliance between Opec and non-Opec producers vowed a proactive response in rebalancing oil markets. Karen Bleier / AFP

Energy

Opec+ vows proactive response in rebalancing oil markets

The group is set to increase production by 500,000 bpd from January

Fareed Rahman
Fareed Rahman

December 20, 2020

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Opec+, the alliance between Opec and non-member producers, vowed to take a proactive response in rebalancing oil markets as the Covid-19 pandemic continues to hit global demand, top officials from Saudi Arabia and Russia said.

Saudi Arabia’s energy minister Prince Abdulaziz bin Salman and Russia's deputy prime minister and energy minister Alexander Novak met in Riyadh on Saturday and said countries participating in the output curbs agreement will “comply, cut and compensate for overproduced volumes”.

They also pledged to continue to monitor oil markets closely and "to act proactively and adjust supplies gradually and according to market requirements to accelerate the rebalancing process", according to a statement carried by the Saudi Press Agency.

Oil producing countries are currently cutting production by 7.7 million barrels per day to stabilise oil markets amid the pandemic. The group is set to increase production by 500,000 bpd in January.

"[With Russia], we are on the same page in our bilateral relationship and making sure that the market is stable and sustainable," pan-Arab newspaper Asharq Al Awsat quoted Prince Abdulaziz as saying during a joint press conference with Mr Novak on Saturday. "Continuous sustainability and stability is the pillar," he added.

Opec+ will meet on January 3 and 4 to discuss the current levels of adherence to the output restriction pact and to decide on further production hikes.

Brent, the international marker, was up 1.48 per cent and trading at $52.26 per barrel when markets closed on Friday, while West Texas Intermediate, the US gauge, rose 1.53 per cent to $49.10 per barrel.

Last week, Opec revised down its oil demand forecast for 2021 by 350,000 barrels per day but left its assessment for the current year relatively unchanged after factoring in uncertainty over the impact of Covid-19 on transportation fuels.

Global demand for 2021 is estimated to increase by 5.9 million bpd, largely due to the possible slowdown in demand for fuel in the first half of the year in OECD economies, according to Opec’s monthly oil market report.

Saudi Arabia and Russia will also strengthen bilateral energy cooperation between relevant stakeholders in the fields of oil and gas, electricity, energy efficiency and alternative energy, the statement said.

The two countries will also work towards "facilitating mutual investments in joint projects across a wide range of industries, joint production of high-tech products and other areas of mutual interest".

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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.”

EnergyEconomyOpec