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$42bn BONANZA: Huge Kuwait surplus likely

Kuwait, January 19, 2014

An oil price of between $103 and $105 barrel per day (bpd) in the financial year 13/14 could generate a budget surplus of around KD12 billion ($42.3 billion) for Kuwait this fiscal year, equivalent to 24 per cent of GDP, said a report.

The oil prices were broadly flat through December, before dropping in early January on news of a potential rise in Libyan supplies and a stronger US dollar, according to the National Bank of Kuwait (NBK).

The Kuwaiti lender expects oil market fundamentals to loosen in 2014, driven by a strong rise in non-Opec supplies. But downward pressure on prices may yet be limited by supply concerns and improving demand conditions, it stated.

The crude oil prices were more or less flat through December, before weakening in early this month. The price of Kuwait Export Crude (KEC), for example, averaged $106 per barrel (pb) unchanged from its end-November level, it stated.

However, it slipped to $103 in the first week of the new year, it added.

Similarly, Brent crude averaged a steady $111, then fell to $107 in early January, said the top Kuwaiti lender in its report.

The price of West Texas Intermediate (WTI) – the main US crude benchmark – was comparatively volatile, averaging $4 above its end November level, at $98, before falling to $92 in early January. This volatility was supported by US-specific factors, it said.

The absence of significant price movements in December was not surprising. Major oil market news was reasonably thin on the ground, and traders typically avoid taking large positions at year-end.

The drop in prices in early January, however, came on bearish news for fundamentals. US oil product inventories rose more than expectations – although some of this could be reversed in subsequent data as the recent US cold snap boosts demand.

Meanwhile, protesters at a major Libyan oil facility agreed to lift a blockade which had shut-in some 0.3 million barrels per day (mbpd) of crude. On the financial side, the imminent start-up of the US Fed’s ‘tapering’ program boosted the dollar, which typically erodes support for crude in dollar terms.

On average, crude prices held up well through 2013. stated the NBK report. The price of KEC averaged $105 through the year, down only slightly from a record $109 in 2012. Brent averaged $109, down from $112 a year earlier, it added.

Analysts’ forecasts for global oil demand growth in 2014 have been revised up over the past month. This comes on the back of improved projections for US oil demand, after consumption in September was reported to register its strongest annual growth in nearly a decade, stated the NBK.
 
The International Energy Agency now sees global oil demand growing by 1.2 mbpd in 2014, or 1.3 per cent, from 1.1 mbpd (1.2 per cent) last month. However, in light of upward revisions to demand estimates for 2013, global demand growth is no longer expected to see an acceleration this year.   

The Kuwaiti bank pointed out that the crude output of the OPEC-11 (excluding Iraq) dropped by some 587,000 bpd to a two-year low of 27.4 mbpd in November - according to data provided by ‘direct communication’ between Opec and national sources.

Production fell for the fourth consecutive month, and has now fallen by more than two mbpd since July. This was mainly due to deepening outages in Libya, it added.

Kuwaiti official figures for the first half of FY2013/14 reveal that revenues reached KD15.8 billion, some KD2 billion short of the government’s projection for the entire year, said the NBK in its report.

"If as we expect, spending comes in 5-10 per cent below the government’s forecast, this year’s budget surplus could end up between KD11.8 and KD 13.3 billion before allocations to the Reserve Fund for Future Generations. This would equate to between 23 per cent and 26 per cent of 2013 GDP," it added.-TradeArabia News Service




Tags: Kuwait | budget surplus |

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