Robin Mills, in his column of August 4, takes exception to the thesis, proposed by the University of California at San Diego economist James Hamilton and me, that oil prices are likely to stay high. This is part of a larger debate, not only about the prospects for oil supply growth and oil prices, but for strategic options for countries such as the UAE and major oil companies such as Exxon and Chevron.
The oil price debate can be boiled down to three schools of thought.
Two of the three analytical approaches are demand-driven and can be respectively associated with Citi Commodities Research, on the one hand, and BP and the OECD’s International Energy Agency (IEA), on the other.
Citi takes the view that oil demand is thin, that there is potential upside in the liquids supply, and that fuel substitution will soon begin to siphon demand from oil-based fuels. Thus, oil prices are likely to collapse, with Ed Morse, the head of commodities research at Citi, typically forecasting oil prices in the US$65 to $90 a barrel range, Brent basis.
These numbers have not been realised to date. Nevertheless, if one took this view, then investing in upstream capacity hardly makes sense. Thus, the UAE or the oil majors should take an essentially defensive position in the market.
BP and the IEA have another version of this argument, in which supply outpaces demand, but high prices remain. BP, in its Energy Outlook 2035 (January 2014), elaborates on this perspective, stating: “The market requirement for Opec crude is not expected to reach today’s levels for another decade before rebounding. While we believe that Opec members will be able to maintain discipline despite high levels of spare capacity, cohesion of the group is a key oil market uncertainty.”
BP, like Citi, sees demand as thin and vulnerable to increased supply. Prices do not collapse, however, due to Opec's long-term willingness to hold high levels of spare capacity.
Thus, if the UAE accepted the BP point of view, prices remain high, but alas UAE production volumes will fall. Again, this is a bearish signal and would lead the UAE to take an essentially defensive position with respect to upstream investments.
What is the reality? Is the UAE’s strategy aligned with BP or Citi’s analysis? Not to appearances. UAE oil and liquids production are both at record highs. Oil production has increased modestly, but total liquids production is up 21 per cent in the last decade, and up 4.6 per cent in just the last two years.
Will this trend be reversed? Does the UAE plan to be more defensive in the future? In fact, no. Production capacity in the Emirates is slated to increase by 23 per cent to 3.5 million barrels per day (bpd) by 2017. Thus, UAE production and capacity plans suggest that decision-makers there assume prices and volumes demanded will continue to be robust. This implies that either UAE decision-makers do not believe Citi and BP, or they are making bad decisions.
On the other hand, using a supply-constrained approach UAE strategy makes sense. This school of thought argues that supply continues to lag demand, leading oil prices to rise to the full level that the global economy will bear (the “carrying capacity” price). From this point, prices will be difficult to increase. But exploration and production costs will continue to rise, and this will limit supply, particularly from the oil majors and conventional sources.
In this interpretation, there is plenty of demand, but the potential for only modest oil price appreciation. The oil system in this view is price-stable and volume-insensitive, and the UAE is correctly responding to market pressures by raising capacity and production. Indeed, it may have latitude to increase production above current targets.
The supply-constrained model is seeing a test right now. Shale oil growth in the US is simply astounding, with US supply up 1.5 million bpd in the last year. Add Canada, and North American production is up a phenomenal 1.8 million bpd last month compared to a year ago, even as the Libyans have re-entered the market in a modest way.
According to industry sources, the rest of Opec has yet to respond with production adjustments. Meanwhile, European and Japanese economic data continue to disappoint. Brent has been weak, but is holding above $100 a barrel, even in the face of a supply onslaught and feeble demand from advanced countries.
If the supply-constrained theory is right, Brent oil prices should tend to hold near recent levels. A bigger supply surge might depress oil prices for a time, but latent demand should quickly soak up any excess supply, returning prices to the level of the past three years. If that’s the case, the UAE will have made the right call to increase its production capacity. The world remains short on oil, and the UAE is stepping up to provide it.
Steven Kopits is the managing director of Princeton Energy Advisors and can be reached at steven.kopits@prienga.com. He is writing a book on supply-constrained oil markets analysis.
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Biography
Favourite Meal: Chicken Caesar salad
Hobbies: Travelling, going to the gym
Inspiration: Father, who was a captain in the UAE army
Favourite read: Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter
Favourite film: The Founder, about the establishment of McDonald's
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
It Was Just an Accident
Director: Jafar Panahi
Stars: Vahid Mobasseri, Mariam Afshari, Ebrahim Azizi, Hadis Pakbaten, Majid Panahi, Mohamad Ali Elyasmehr
Rating: 4/5
How to volunteer
The UAE volunteers campaign can be reached at www.volunteers.ae , or by calling 800-VOLAE (80086523), or emailing info@volunteers.ae.
From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
Day 2, Abu Dhabi Test: At a glance
Moment of the day Dinesh Chandimal has inherited a challenging job, after being made Sri Lanka’s Test captain. He responded in perfect fashion, with an easy-natured century against Pakistan. He brought up three figures with a majestic cover drive, which he just stood and admired.
Stat of the day – 33 It took 33 balls for Dilruwan Perera to get off the mark. His time on zero was eventful enough. The Sri Lankan No 7 was given out LBW twice, but managed to have both decisions overturned on review. The TV replays showed both times that he had inside edged the ball onto his pad.
The verdict In the two previous times these two sides have met in Abu Dhabi, the Tests have been drawn. The docile nature of proceedings so far makes that the likely outcome again this time, but both sides will be harbouring thoughts that they can force their way into a winning position.
Scoreline:
Cardiff City 0
Liverpool 2
Wijnaldum 57', Milner 81' (pen)
Players Selected for La Liga Trials
U18 Age Group
Name: Ahmed Salam (Malaga)
Position: Right Wing
Nationality: Jordanian
Name: Yahia Iraqi (Malaga)
Position: Left Wing
Nationality: Morocco
Name: Mohammed Bouherrafa (Almeria)
Position: Centre-Midfield
Nationality: French
Name: Mohammed Rajeh (Cadiz)
Position: Striker
Nationality: Jordanian
U16 Age Group
Name: Mehdi Elkhamlichi (Malaga)
Position: Lead Striker
Nationality: Morocco
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Company Profile:
Name: The Protein Bakeshop
Date of start: 2013
Founders: Rashi Chowdhary and Saad Umerani
Based: Dubai
Size, number of employees: 12
Funding/investors: $400,000 (2018)
The biog
Hometown: Birchgrove, Sydney Australia
Age: 59
Favourite TV series: Outlander Netflix series
Favourite place in the UAE: Sheikh Zayed Grand Mosque / desert / Louvre Abu Dhabi
Favourite book: Father of our Nation: Collected Quotes of Sheikh Zayed bin Sultan Al Nahyan
Thing you will miss most about the UAE: My friends and family, Formula 1, having Friday's off, desert adventures, and Arabic culture and people
UAE%20medallists%20at%20Asian%20Games%202023
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What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
It is 200 times more resistant than steel and five times lighter than aluminum.
It conducts electricity better than any other material at room temperature.
It is thought that graphene could boost the useful life of batteries by 10 per cent.
Graphene can also detect cancer cells in the early stages of the disease.
The material was first discovered when Andre Geim and Konstantin Novoselov were 'playing' with graphite at the University of Manchester in 2004.
UAE currency: the story behind the money in your pockets
The biog
Favourite hobby: taking his rescue dog, Sally, for long walks.
Favourite book: anything by Stephen King, although he said the films rarely match the quality of the books
Favourite film: The Shawshank Redemption stands out as his favourite movie, a classic King novella
Favourite music: “I have a wide and varied music taste, so it would be unfair to pick a single song from blues to rock as a favourite"
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
FIXTURES (all times UAE)
Sunday
Brescia v Lazio (3.30pm)
SPAL v Verona (6pm)
Genoa v Sassuolo (9pm)
AS Roma v Torino (11.45pm)
Monday
Bologna v Fiorentina (3.30pm)
AC Milan v Sampdoria (6pm)
Juventus v Cagliari (6pm)
Atalanta v Parma (6pm)
Lecce v Udinese (9pm)
Napoli v Inter Milan (11.45pm)
Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
- Solo riders only, no passengers allowed
- Do not drive outside designated lanes
Points tally
1. Australia 52; 2. New Zealand 44; 3. South Africa 36; 4. Sri Lanka 35; 5. UAE 27; 6. India 27; 7. England 26; 8. Singapore 8; 9. Malaysia 3
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
Company profile
Name: GiftBag.ae
Based: Dubai
Founded: 2011
Number of employees: 4
Sector: E-commerce
Funding: Self-funded to date
Analysis
Maros Sefcovic is juggling multiple international trade agreement files, but his message was clear when he spoke to The National on Wednesday.
The EU-UAE bilateral trade deal will be finalised soon, he said. It is in everyone’s interests to do so. Both sides want to move quickly and are in alignment. He said the UAE is a very important partner for the EU. It’s full speed ahead - and with some lofty ambitions - on the road to a free trade agreement.
We also talked about US-EU tariffs. He answered that both sides need to talk more and more often, but he is prepared to defend Europe's position and said diplomacy should be a guiding principle through the current moment.
The%20specs
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THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
TRAP
Starring: Josh Hartnett, Saleka Shyamalan, Ariel Donaghue
Director: M Night Shyamalan
Rating: 3/5
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law