Need an extra $42.4 billion? For this Gulf country, this surplus is a real possibility in 2014
Kuwait could generate a budget surplus for Kuwait of around KD12 billion ($42.4 billion) in 2013/14 fiscal year on an oil price of between $103 and $105 barrel per day (bpd), said a report.
This is equivalent to around 24 per cent of GDP, according to National Bank of Kuwait (NBK), the country's top lender.
After dipping sharply in early November, crude oil prices rallied through the rest of the month, regaining all of the previously lost ground as markets digested the Iranian nuclear deal and responded to a flow of positive global economic data, it stated.
The price of Kuwait Export Crude (KEC) rose from a low of $101 bpd in early November to $107 a month later, $3 above its November average.
However, with non-OPEC supplies expected to rise strongly in 2014, OPEC may still need to cut output in order to maintain prices close to $100, the Kuwaiti bank cautioned.
Brent crude prices menawhile rose from a low of $103 in early November to $114 – well above the trading range for most of the year. The price of West Texas Intermediate (WTI) – the main US crude benchmark – once again bucked the trend, failing to see any sort of bounce until the first few days of December. At a price of $92 WTI’s discount to Brent reached $20 in late November, its highest since March.
"The rise in crude prices came as markets digested the implications of the late November deal between the international community and Iran over the latter’s nuclear program. The deal suspends any tightening of current oil sanctions, and paves the way for a possible return of up to 1 million barrels per day (mbpd) of Iranian oil exports to the global market next year," the NBK said in its report.
However, although the deal is bearish for oil prices over the long-term, it releases little or no extra oil on the market for the next few months, and there is no guarantee that a final agreement will be reached next May, it added.
Meanwhile, a slew of encouraging economic data – particularly in developed economies – has boosted the prospect of global oil demand soaking-up the large expected rise in non-Opec supply next year.
Separately, WTI’s discount to Brent has re-established itself as a notable feature of the global oil market. The rise in the discount has been driven by a build-up in US crude stock levels, thanks mainly to a continued rise in US tight oil production.
But in addition, Brent – as the main international benchmark – has found support from global factors, including the disruptions to supply in key producers such as Libya, Iraq and Iran. In principal, this confers a competitive advantage to US energy intensive industries.
This includes US refiners, who gain access to cheap US crude feedstock, but who can then sell refined products at higher global rates. But this should be set against the cost to US crude producers, who – for legal reasons – must sell their product in the domestic market, satted the NBK in its report.
Analysts’ forecasts for global oil demand growth have diverged over the past month. The International Energy Agency (IEA) have slightly reduced their forecasts for next year in line with lower economic growth expectations in the US and China.
Crude output of the Opec-11 (excluding Iraq) fell for the third consecutive month, plunging by 604,000 bpd to 28.1 mbpd in October – according to data provided by ‘direct communication’ between Opec and national sources.
This came on the back of steep declines in Saudi Arabia (370,000 bpd) and Iran (317,000 bpd). Saudi output was reduced to below 10 mbpd for the first time in 4 months as a result of the seasonal wind-down in crude demand at domestic power plants. Kuwait and the UAE also cut output slightly at the end of the hot summer months, said the report.
Iranian production reportedly fell to 3.2 mbpd in October, though secondary sources cite lower output levels of around 2.7 mbpd. Further large declines in Iranian output are unlikely following a softening of US measures that force buyers of Iranian crude to reduce imports, it stated.
With oil prices projected to average $3-4 lower than last year, Kuwait government revenues may fall slightly in FY13/14, stated NBK in its review.
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 KD11.6 billion and KD12.9 billion before allocations to the RFFG. This would equate to 23 per cent-26 per cent of forecast 2013 GDP, said the report.
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