Oman crude oil trading on the Dubai Mercantile Exchange continued to bounce around multi-year lows last month, with the market reaching a stalemate as wider economic uncertainty largely countered signs that US oil production is increasingly curtailed by this year’s low prices.
The monthly average price of the DME for September, which is used by Oman and Dubai to set their official selling price, was $45.76 per barrel, down 4 per cent or $2.12 from the August average of $47.88, as spot prices hovered around $45 in the latter part of the month. The contract for November-delivery crude closed at $45.01, about $1.50 down from the previous month’s close.
Uncertainty in the global financial markets, and particularly in the commodities sector, has generally cast a gloomier outlook for oil in the short-to-medium term. China's worsening economic slowdown is seen as particularly bearish for oil prices, as it is likely to maintain the oversupply even if, as expected, production from the US and other expensive production fields continues to erode. At prices below $50, a number of analysts have forecast that enough oil production will come off the market, which will allow for a demand/supply rebalancing and a gradual price rebound in 2016.
However, forecasters are reducing price outlooks including a survey of 13 investment banks by The Wall Street Journal, which collectively cut their average forecast for Brent crude by $9 to $58.70 per barrel, compared with last month's survey, with only three of the banks expecting Brent to rise above $70 per barrel in 2016. Brent is used as the European benchmark to gauge oil prices, and is currently trading at around $3 per barrel over Oman, so the forecast puts typical Middle East crude at around $55.
Likewise, the monthly survey from Reuters concluded Brent crude is expected to average $58.60 per barrel in 2016, slightly above the $56.63 so far this year but well below the forecast of $62.30 in last month’s poll in a survey of 31 analysts.
US oil production continues to trend downwards, with the latest figures putting output at a nine-month low of 9.1 million barrels per day – and further falls are expected.
The consultant Wood Mackenzie, which is a global leader in production analysis, said in a recent report that about $1.5 trillion of potential investment in global new oil projects is not viable with crude prices at $50 per barrel, highlighting the need to reduce costs.
The consultants said the “at risk” proposed projects, including spending on North American shale, are “now out of the money and uneconomic at $50 per barrel”.
The rebalancing in supply/demand economics will give some comfort to Saudi Arabia in its policy of maintaining market share and, in the long, run forcing out high-cost producers and so avoiding a future oil glut. Some market watchers have suggested Opec itself may rein in production at some point in 2016, but would probably look for support from non-Opec members such as Russia and Mexico.
The new front-month December contract settled on Friday at $45.22, maintaining the recent stability in the market and lending support to the case that prices have largely bottomed out at current levels. In the forward market, Oman prices for one year out were trading around $52.
Paul Young is the head of energy products at the DME.
Follow The National's Business section on Twitter
MATCH INFO
Barcelona 5 (Lenglet 2', Vidal 29', Messi 34', 75', Suarez 77')
Valladolid 1 (Kiko 15')
Wicked: For Good
Director: Jon M Chu
Starring: Ariana Grande, Cynthia Erivo, Jonathan Bailey, Jeff Goldblum, Michelle Yeoh, Ethan Slater
Rating: 4/5
Scream%20VI
%3Cp%3E%3Cstrong%3EDirectors%3A%3C%2Fstrong%3E%20Matt%20Bettinelli-Olpin%20and%20Tyler%20Gillett%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStars%3A%3C%2Fstrong%3E%20Melissa%20Barrera%2C%20Jasmin%20Savoy%20Brown%2C%20Jack%20Champion%2C%20Dermot%20Mulroney%2C%20Jenna%20Ortega%2C%20Hayden%20Panettiere%20and%20Courteney%20Cox%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%203%2F5%3C%2Fp%3E%0A
The biog
Siblings: five brothers and one sister
Education: Bachelors in Political Science at the University of Minnesota
Interests: Swimming, tennis and the gym
Favourite place: UAE
Favourite packet food on the trip: pasta primavera
What he did to pass the time during the trip: listen to audio books
More from Neighbourhood Watch:
Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5
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.”
