Opec nations are facing stiffer competition from rising North American production. Above, an oil pump in Bahrain. Hasan Jamali / AP Photo
Opec nations are facing stiffer competition from rising North American production. Above, an oil pump in Bahrain. Hasan Jamali / AP Photo
Opec nations are facing stiffer competition from rising North American production. Above, an oil pump in Bahrain. Hasan Jamali / AP Photo
Opec nations are facing stiffer competition from rising North American production. Above, an oil pump in Bahrain. Hasan Jamali / AP Photo

Business

Opec warning of $150 oil price if member countries cut investment

Abdalla El Badri, the secretary general of Opec, warned that oil prices could top $150 if the oil exporter’s group stops investing.

April Yee

October 21, 2013

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Oil prices could top US$150 if Opec countries stop investing in new capacity, warned the head of the oil exporters' group.

Although the market was currently well supplied, said Abdalla El Badri, the secretary general of Opec, his comments underlined the group’s importance in global markets. OPEC faces increased competition from rivals reaping the benefits of fracking technology, allowing long-time clients, such as the United States to decrease crude imports.

“While recent developments in the US have been transformative for its energy industry, we need to see how sustainable this type of production is in the longer term,” he said at a forum hosted by Gulf Intelligence in Muscat.

“Tight oil wells in the first year witness steep decline rates. It means that operators need to ‘drill, drill, drill’ just to maintain production.”

Opec will have to ramp up production from today’s levels of around 30 million barrels per day (bpd) to 37 million bpd by 2018 to make up for declines in North American production, said Mr El Badri.

In the short term, Opec producers are forcing themselves to undergo a self-examination as rising production in North America negates the need for some of their exports.

Non-Opec producers, led by shale oil developers in the US and Canada, are projected to boost output by 1.7 million barrels per day to 56.4 million next year, according to the International Energy Agency, the Paris-based watchdog.

Next week Abu Dhabi’s Emirates Center for Stretegic Studies and Research is to host a forum on what unconventional fossil fuels mean for the region.

“Let me stress here that this is a welcome development,” said Mr El Badri. “It adds depth to global supply, aids market stability and provides further proof to consumers that the world is not running out of oil. We hear very little talk of ‘peak oil’ today.”

An oil price between $100 and $110 a barrel was “acceptable” to producers and consumers alike, he said. Brent crude was trading slightly up yesterday at $109.97 in London.

“The economy remains the major worry, particularly in the short and medium term,” said Mr El Badri, pointing to the US, Europe and China.

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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.”

Ziina users can donate to relief efforts in Beirut

Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”

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