OPEC+ maintain production cuts as oil prices continue to rise

Spotlight: The Pros and Cons of AI in Finance

Artificial intelligence (AI) is the development of technology that allows computer systems to act and perform in a ‘human’ way. Many have been living with AI in their day-to-day lives perhaps without realising. Examples include digital assistants like Amazon’s Alexa, Apple’s Siri, and Microsoft’s Cortana. These household-name gadgets use AI technology to constantly learn and recognise our habits to provide more accurate outcomes each time we use them. AI is also used in the public sector. The process of booking a GP appointment for example, has been hugely impacted by the introduction of AI. Triage solutions using the technology can question, analyse symptoms, and allocate patients to an appropriate practitioner, saving on long queue times.

In wealth management, artificial intelligence technologies can be used to offer financial advice, predict investment performance, or identify market trends. Various forms of AI are utilised in this context, with predictive and generative AI being among the most notable. Predictive AI relates to a computer programme's ability to use statistical analysis to identify patterns and behaviours to forecast future events. Generative AI (Gen AI) uses specific algorithms to create new content including audio, imagery, text, and videos. Over time more industries, including financial services, are realising its full potential and are looking at ways to embed the technology into their business operations. One example of business solution AI is ‘Aveni’, (an AI assistant designed specifically for the Financial Services sector) that can be embedded onto client calls, to gather information to help with client onboarding, adviser training, tailoring advice, and assist with suitable compliance. In a recent study by Compeer, clients expressed a desire for wealth managers to have adequate digital offerings and improved technology. The survey also revealed that online valuations ranked top in terms of importance, and 69% of all investors gave secure online messaging via a client portal a four or five rating, source FTAdviser.com.

Enhancing efficiency, accuracy, and streamlining processes are some of the notable benefits of AI implementation. However, it's important to acknowledge that, like any new development in technology, there are considerations in the use of AI. Among these are cyber security concerns and the need to address potentially fraudulent activities. Wealthy individuals and their families may find themselves targeted by cybercriminals seeking financial gain or data theft. AI’s ability to replicate human behaviour can increase this risk. Through the adoption of prudent digital practices and robust cybersecurity measures, individuals and their families can effectively manage these risks and safeguard their financial assets. It is worth noting that the risks associated with AI typically arise from human misuse rather than inherent flaws in the technology itself. In terms of progress in the industry, the chart below shows the percentage AI usage of several financial institutions.

The Noise​

• Euro zone inflation was lower than expected in March, solidifying the European Central Bank’s case to kick off lowering borrowing costs from record highs. Consumer price growth in the 20 euro zone nations slowed to 2.4% in the 12 months to the end of March from 2.6% a month earlier, as food, energy, and industrial goods prices all dragged the headline figure lower. Meeting next week, the European Central Bank is expected to acknowledge the improved inflation outlook, though is unlikely to cut rates and continue to point at a first cut in June. The only potential threat to that first cut is services inflation has been holding steady at 4% through 2024, as strong wage growth keeps prices in the sector under pressure.

• UK shop prices rose at the slowest pace in more than two years in March, per the British Retail Consortium, adding to signs that inflation is now fading. Shop price inflation fell to 1.3% in the 12 months to March, from 2.5% in February. Food prices rose 3.7% down from 5.0%, while non-food prices rose by only 0.2%, slowing from a 1.3% increase in February. Though this is all good news for consumers, retailers are starting to face new cost pressures that could thwart progress made on reducing inflation. Rising business taxes, new post-Brexit border checks and an almost 10% increase to minimum wage will add to costs that could trigger a re-acceleration in price growth.

• The UK continues to lead the way in cutting emissions, as provisional data released by the department for energy security and net zero revealed a 53% reduction in emissions between 1990 and 2023. This puts the UK as the first major economy to halve its emissions and marks a 5% reduction from 2022. Emissions fell further across several key sectors between 2022 and 2023, as reliance on gas decreases. The electricity supply sector saw a 19.6% fall in emissions, while homes and industry reduced emissions by 7.2% and 8.0% respectively. The latest data reflects efforts made to grow the supply of renewable energy. As of 2023, almost half of energy generation was coming from renewables, from just 7% in 2010.

The Numbers

The Nuance

With oil prices up over 20% year-to-date in US dollar terms, it came as no surprise to many that the conclusion from the latest OPEC+ meeting this week was to keep its output policy unchanged. The Organisation of the Petroleum Exporting Countries (OPEC) and its allies are collectively known as OPEC+. Led by Saudi Arabia and Russia, they are responsible for around 40% of the world's oil production, with the group’s main objective to regulate the supply of oil to the global market. Global crude oil markets are almost exactly where the exporter group wants them, with prices at around $90 a barrel, the highest level in five months.

The decision to keep its output policy unchanged means that the voluntary production cut of 2.2 million barrels per day will remain in place until at least the end of June. This joins the existing 3.66 million barrels per day of cuts agreed in 2022. The committee did note however that some countries had been over-producing and as a result will be required to compensate other members.

With the price of oil now at levels desired by OPEC+, the trick for them will now be to make sure it stays at that level. The risk for central banks and governments is that should oil prices continue to rise to $100+, this may fuel a new round of inflation in oil importing countries (such as the UK).

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