Ian Hamilton

This column is authored by Ian Hamilton, who is the founder of IDS Group. IDS provides fund administration services in Africa and Europe through Malta. He is also the founder of Scotstone Investments, a company that has fund structures and services for global emerging new managers.

A duck and a chicken spy a worm on the other side of the pond. The pond is covered in an oil spill.

The chicken runs around the pond, the duck swims through the oil. Who gets the worm? *

With oil prices hovering around $50 a barrel, over 50% down on their highs last year, there is a conundrum for the New Year. But it is worth examining some of the many issues surrounding the situation- the causes and effects.

The OPEC cartel is clearly in trouble with Saudi Arabia not playing the swing player by reducing output as it has done in the past.

Why has there been a surge in output?

There are a number of “troubled" regions coming back into the market- Iraq and Libya. Fracking in the US is also adding to the supply. Iran is still in the market, despite US sanctions efforts.

There are the current producers such as Russia, Nigeria, Malaysia and Venezuela who all have tight and near bankrupt economies that need oil revenue and cannot afford to cut back, and with lower oil prices, need to produce more.

So the lower the oil price falls, the more oil is pumped out. With Saudi Arabia not willing to cut back, there has to be a massive oversupply.

The lower oil price must be having a considerable impact upon the oil producing countries. Many do have nest eggs tucked away in Sovereign Wealth Funds (SWF), which can be used to finance budget shortfalls, but most of the smaller oil......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.