Opec countries boosted oil output to a 14-month high in October as crude futures sank into a bear market, a Bloomberg survey showed yesterday.
Production by the 12-member Opec climbed by 53,000 barrels a day to 30.974 million, led by gains in Iraq, Saudi Arabia and Libya, according to the survey of oil companies, producers and analysts. Last month’s total was revised 14,000 barrels a day lower to 30.921m because of changes to the Iraqi, Kuwaiti, Nigerian and Qatari estimates.
Opec nations lifted output as Brent crude dropped to a four-year low amid ample global supplies and sluggish demand. The group’s biggest producers, Saudi Arabia, Iraq, Iran and Kuwait, have cut their official selling prices, sparking speculation they will compete for market share rather than trim output. Ministers will gather next month to discuss the group’s production target.
“The data confirms that there’s a battle over market share,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said. “The members are playing chicken with the market.”
Brent crude for December settlement slipped 88 cents, or 1 per cent, to US$86.24 a barrel on the London-based ICE Futures Europe exchange on Friday. Brent, the benchmark for more than half the world’s oil, touched $82.60 on October 16, the lowest since November 2010 and down more than 20 per cent from its June high, meeting the common definition of a bear market.
Opec is also seeing demand for its crude drop as US crude production surges. US output rose 0.4 per cent to 8.97m barrels a day last week, the highest in weekly Energy Information Administration estimates that began in January 1983. The agency's monthly data, which goes back to 1920 and is based on data collected by state and federal agencies, shows production at the highest since 1986.
“The members of Opec are in a tough position,” Mike Wittner, head of oil market research at Societe Generale in New York, said by phone. “The lack of action so far shows that the Saudis are serious about other members doing their part.”
Iraqi output climbed 150,000 barrels a day to 3.3m this month, according to the survey. It was the biggest gain in October and left the country pumping the most oil since May.
Saudi Arabia, the group’s biggest producer, bolstered output by 100,000 barrels a day to 9.75m this month to meet demand from two new refineries, Yasref and Satorp.
“The Saudis seem to be more concerned about their volumes than about falling prices,” Mr Kilduff said.
Libyan output climbed by 70,000 barrels a day to 850,000 this month, the sixth straight increase. It was the highest level since June 2013. The country’s current output is about half what it was before the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule.
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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.”
