On Sunday some of the largest global oil producers will meet in Doha to try and reach an agreement on production levels. The very fact that this meeting is taking place has been enough to drive up prices.
WTI crude and Brent crude bottomed out in February when the oil producers began to discuss introducing a plan to freeze oil production at January’s levels, even though these levels are some of the highest yet within the industry.
In response WTI advanced from US$26.21 per barrel all the way to US$42.25, a rise of 62.19 per cent in just over two months. Brent also advanced from $27.88 all the way to as high as $44.81 within two months, up 65.35 per cent.
The power of “expectation” is very clear. The recent price recovery has been based on hopes and remarks, but at this stage no hard facts or agreements.
For the past few weeks, almost every day we have had different views or updates from commentators and producers alike, raising speculation about and hopes of a production freeze. But after Sunday, hopefully the picture will be clearer.
The dynamics of supply are always changing and at the start of the year, after sanctions were lifted, no one expected Iran would be able to produce a significant amount of oil. Even Iran noted that they were aiming to reach 1 million barrels per day by June. However, Iran has surprised the world with 3.2 million bpd in March. This has immediately led to producers calling for Iran to be included in any supply formula.
Last week, Saudi Arabia announced that it is ready to freeze production only if Iran agrees to join. However, Iran responded by saying “we will attend the meeting but without joining the freeze plan”. This caused an immediate drop in price, reaffirming how sensitive oil is to news.
On Tuesday, oil spiked by more than 5 per cent on reports that Saudi Arabia and Russia had reached a consensus on an oil freeze and that the Doha meeting decision will not depend on Iran. There is still no confirmation of the remarks, and the Saudi and Russian ministries have not commented on the reports. But some analysts see this rhetoric as paving the way for a deal in Doha.
There are a number of scenarios from the meeting which can be considered. The first is that there is no freeze. This may be possible, as many analysts and industry insiders believe that Iran is now important to this meeting, and if they refuse to join in then the others will back away from an agreement.
There could be an outcome whereby there is no freeze, but the parties continue to monitor production and will act if the price does not keep increasing, or falls below the $35 to $40 per barrel level.
This would buy the producers more time ahead of the next Opec meeting in June. Or, in order not to disappoint the market and to keep hopes higher, the producers may reassure the market that a deal will be reached at some point in the coming weeks ahead of the Opec meeting.
The other option is for a freeze to be agreed for one or a number of months to allow the price of oil to establish its true value.
If Iran does refuse to be part of the deal, the other producers may be more inclined to go for the short-term freeze option and monitor what happens. This may be acceptable to the market.
Any freeze in production would maintain the positive momentum towards oil, but this does not mean that $100 per barrel will be reached this year.
Whatever happens, the most important fact is that the producers are meeting and talking. This will give the markets the reassurance they are looking for and as we have seen, any good news helps to lift the price.
Almost all producers and users agree that oil is undervalued at the moment, and controlling supply is the best way of resolving this.
The positive export figures from China yesterday also indicate that its economy may be stronger than many people believe, which is also good news for the industry.
Nour Eldeen Al Hammoury is the chief market strategist at ADS Securities
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.”
Profile Idealz
Company: Idealz
Founded: January 2018
Based: Dubai
Sector: E-commerce
Size: (employees): 22
Investors: Co-founders and Venture Partners (9 per cent)
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The drill
Recharge as needed, says Mat Dryden: “We try to make it a rule that every two to three months, even if it’s for four days, we get away, get some time together, recharge, refresh.” The couple take an hour a day to check into their businesses and that’s it.
Stick to the schedule, says Mike Addo: “We have an entire wall known as ‘The Lab,’ covered with colour-coded Post-it notes dedicated to our joint weekly planner, content board, marketing strategy, trends, ideas and upcoming meetings.”
Be a team, suggests Addo: “When training together, you have to trust in each other’s abilities. Otherwise working out together very quickly becomes one person training the other.”
Pull your weight, says Thuymi Do: “To do what we do, there definitely can be no lazy member of the team.”
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
