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The price of crude dropped by as much as 3 per cent in London and New York as investors speculated over the likelihood of Greece defaulting on its sovereign debt and digested a series of negative remarks by Abdalla El Badri at a meeting in Dubai.
The Opec chief warned western nations needed to do more to bolster their economies and stem unemployment or they risked jeopardising billions of dollars in oil investments.
"It's really hampering the demand for oil," he said. "That stimulus package is not really working. Something must be done to introduce new manufacturing, new activities [so the West] can solve its unemployment."
Producers and consumers alike have lowered their forecasts for oil demand growth over the next two years amid the grim economic outlook.
Crude oil for October delivery declined US$2.84, or 3.23 per cent, to $85.12 a barrel in early trade on the New York Mercantile Exchange. Futures have lost 6 per cent this year.
Brent crude for November settlement dropped $3.16, or 2.82 per cent, to $109.06 a barrel on the ICE Futures Europe Exchange in London.
"Crude has been knocked down on a combination of Greek concerns and bearish comments out of Opec," Matt Smith, a commodities analyst with Summit Energy Services in the US, told Bloomberg News. "Concerns about Greece are causing the euro to sell-off hard and the secretary general of Opec came out with a double whammy on production cutbacks and demand growth."
Opec, which supplies 40 per cent of the world's oil, pumps about 30 million barrels per day (bpd). Member countries are investing $312 billion (Dh1.14 trillion) over the next five years to bring 21 million bpd to the market, Mr El Badri said, and they needed to be assured that those barrels would be required by talking with China and the US about their future energy needs.
"The consequence is this $312bn is shooting into the dark. Maybe that new production will never go to the market," said Mr El Badri. "Thirty million [barrels] is not like this bottle of water, you just open and pour it. A lot must happen to bring oil to the market. You have to spend a lot of money."
Mr el Badri, who served as the chairman of the Libya's National Oil Company during three stints from 1983 to 2006, estimated the Opec member country could regain its pre-conflict pumping levels of 1.6 million barrels per day (bpd) within 15 months.
Oil infrastructure appears largely undamaged but computers and smaller technical instruments critical to production could have been looted or damaged, he feared.
"I am afraid of what happened in Iraq," said Mr El Badri. "In Iraq there was a lot of instrumentation lost. And those instruments you cannot really buy them from the shop.
"You must have security. You must have access to spare parts. You have to mobilise the entire oil industry towards that target."
Gulf countries, which increased production to make up for the loss of Libya's light, sweet crude, will lower pumping to keep markets in check, he said.
"I can assure you when Libya comes back, our member countries will reduce production," said Mr El Badri. "I don't have to talk to member countries, I don't have to talk to anyone. Things will settle themselves."
Opec is next scheduled to set pumping policy in December, its first meeting since the acrimonious discussions in June when Saudi Arabia and Iran clashed over whether to increase the group's production target.
After the meeting in Vienna, Mr El Badri announced the group's 12 members had failed to reach consensus.
"This meeting is forgotten and when we meet in December, you will not hear these kind of statements again," he said this week. "At the end of the day, it is the most important income for oil countries. We have to protect it."
ayee@thenational.ae
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
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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.”
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