Kuwait sees $42 billion budget surplus
Kuwait, October 20, 2013
An oil price in the range of $104 and $106 barrels-per-day (bpd) in the financial year 2013/14 could generate a budget surplus for Kuwait of between KD12 ($42.4 billion) and 14 billion this fiscal year, following the KD13 billion surplus recorded last year, said a report.
The crude oil prices fell back through September, reversing the gains made in August, partly driven by geopolitical events, including the receding prospect of US military intervention in Syria, according to National Bank of Kuwait.
The price of Kuwait Export Crude (KEC) fell from a peak of $110 bpd in early September, to below $105 by the end of the month, the country top lender said in its report.
Nevertheless, the average price through September of $107 was still the highest since February. Brent crude prices followed a similar pattern, falling from a peak of $117 in early September to $108 by the start of October, it stated.
The price of the main US benchmark – West Texas Intermediate (WTI) – also fell, though WTI’s discount to Brent remained small by the standards of the past few years, averaging just $5 bpd (compared to $22 at the end of 2012) in September.
Seasonal factors may also have played a role in the decline: Oil demand in the GCC (particularly in Saudi Arabia) tends to fall as temperatures drop in the post-summer months, releasing more crude for export.
Finally, the market was under pressure from the expectation (subsequently unrealized) that the US Federal Reserve would start to reduce its monetary stimulus, which would dampen economic growth prospects, said the NBK report.
"As we enter the fourth quarter, prices have in fact held-up well this year despite a number of headwinds: moderate demand growth, elevated crude production in the GCC and a continued surge in non-Opec supplies," it added.
Besides these geopolitical issues, a key offsetting factor has been persistent weakness in Opec supplies from outside the Gulf, the NBK stated in its report.
Libya, Iran and Nigeria have all witnessed large shut-ins (for different reasons), while output in Iraq has grown less quickly than some expected, it said.
There is the potential for oil market fundamentals to weaken in the first half of 2014 as demand falls away due to seasonal factors and non-Opec supply continues to grow. If so, then the Opec may have to cut production aggressively in order to support prices next year, especially if some of the temporary supply restrictions of 2013 go into reverse, the top Kuwaiti lender stated.
On the 2014 outlook, NBK said the analysts’ forecasts for global oil demand growth have remained broadly unchanged over the past month, with incremental demand seen slightly above the moderate level expected for 2013.
The International Energy Agency (IEA) sees demand growing by 0.9 million bpd, or 1 per cent this year, and 1.1 million bpd (1.2 per cent) in 2014, while the Center for Global Energy Studies sees growth at a slightly stronger 1 million bpd this year, rising to 1.1 million bpd next year.
NBK pointed out that the demand growth in the developing world was expected to edge higher in 2014 following a recent soft patch.
"Demand in the developed world is expected to decline once more, but by a smaller amount than in 2013, in line with improving economic prospects in North America and Europe," it stated.
The Kuwaiti lender said the crude output of the OPEC-11 (i.e. excluding Iraq) dropped by a huge 722,000 bpd to 28.9 million bpd in August, according to data provided by ‘direct communications’ between Opec and national sources.
The vast majority of the decline was linked to the well-publicized plunge in Libyan output, where production fell to 0.7 millio bpd from 1.2 million bpd in July on protests that affected key oil infrastructure.
Libyan officials hope that production will return closer to its capacity of 1.6 million bpd soon, though the episode appears to have unnerved some large foreign oil companies active in the sector. Elsewhere, production in Nigeria fell by 120,000 bpd in August on a combination of ‘industrial scale’ oil theft, sabotage and technical problems.
These declines were partially offset by a further rise in Saudi Arabian oil output by 0.2 mbpd to what – by some measures – was a modern day high of 10.2 million bpd. In addition, Iraqi crude production reportedly rose 0.2 million bpd to 3.2 million bpd, as output was boosted ahead of planned maintenance works in September.
Non-Opec supplies are projected to increase by a sizeable 1.3 to 1.5 million bpd for 2013 as a whole, including a 0.2 million bpd rise in output of the Opec natural gas liquids. Most of this is a result of rising US oil production, said the NBK in its report.
Combined with an expected increase in Opec crude output of 0.7 million bpd, total oil output could rise by more than 2 million bpd in 2013. Next year, non-Opec supply could rise by even more than in 2013, potentially setting the stage for a further large increase in total global supplies, it added.
NBK said the oil output was likely to exceed demand for the second year in a row in 2013, causing inventories to rise once more, mainly due to the strong supply gains.
Against that backdrop, a further large increase in non-Opec supplies in 2014 could start to put prices under pressure. Using the consensus forecast of a 1.1 million bpd increase in global oil demand in 2014 and a large 1.4 million bpd increase in non-Opec supplies, the Organization of the Petroleum Exporting Countries may be left needing to cut its output in order to balance the market.
If it implemented only marginal production cuts, the price of KEC would edge down from $108 in fourth quarter of 2013 to $106 in the first quarter of next year and lower thereafter, said the top Kuwaiti bank.
If, on the other hand, demand growth next year ends up 0.2 million bpd stronger than expected, the rise in inventories would be smaller and oil prices would rise. In this scenario, the price of KEC climbs steeply to around $120 bpd by the end of 2014.
Alternatively, a rise in non-Opec supplies next year of 0.3 million bpd more than expected – driven by higher production in the US or the Former Soviet Union – could see oil prices fall sharply.
In this case, the price of KEC declines to $103 in the first quarter of 2014 and below $90 by end-year. These last two scenarios would likely prompt Opec to adjust its output in order to prevent prices moving too far in either direction.
These three scenarios generate oil prices in the narrow range of $104 to $106 in the current fiscal year, with the full effect on prices not felt until FY2014/15, stated the NBK report.
With average oil production more or less unchanged, this generates government budget revenues of between KD32 and 32.7 billion this year, either flat or slightly higher compared to last year, it said.
"If government spending, as expected, comes in 5-10 per cent below its official target of KD21 billion, the budget would see a surplus of between KD12 billion and KD13.8 billion before allocations to the RFFG. This would equate to 24 per cent-27 per cent of forecast 2013 GDP, compared to the government’s ultra-conservative KD 2.9 billion projected deficit," the report added.-TradeArabia News Service
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