How Kuwait's massive spending is slowly destroying its budget plans
As per the preliminary budget, Kuwait's spending for the next fiscal year is likely to hit KD21.9 billion ($57.7 billion) on an oil price of between $103 and $105 barrel per day (bpd), said a report.
Crude oil prices eased back slightly in January, reversing gains made in December, despite support from an improving global economy, according to National Bank of Kuwait (NBK), the country's top lender.
Assuming that spending once again comes in below budget, we project a surplus of around KD11.7 billion before allocations to the RFFG. This would represent Kuwait’s 16th successive budget surplus, stated the NBK in its recent review.
Based on an oil price of between $103 and $105 barrel per day (bpd), Kuwait could generate a budget surplus of around KD12 billion ($31.65 billion) in 2013/14 fiscal year, according to NBK.
This is equivalent to around 24 per cent of GDP, stated the report.
The price of Kuwait Export Crude (KEC) dropped from $106 at the start of the month to a two-month low of $102 in mid-January. Going forward, prices could come under pressure from reduction of monetary stimulus in the US, it added..
Even with further upward revisions to oil demand growth for 2014, the large projected increase in non-Opec supplies still suggests that the oil market will loosen this year.
Similarly, Brent crude prices trended lower in the month, averaging around $108 – some $3 below its December average. The price of West Texas Intermediate (WTI) – the main US crude benchmark – was more volatile.
After dropping to an 8-month low of $91 in early January, WTI prices climbed back quickly to their end-December level of $98. Nevertheless, the average price through January of $94 was still lower than the $98 in the previous month.
According to NBK, the analysts’ forecasts for global oil demand growth in 2014 have been revised up over the past few months. The IEA now sees demand rising 1.3 mbpd this year, or 1.4 per cent, up from 1.2 mbpd in the previous month.
This compares to estimated growth of 1.2 mbpd (1.3 per cent) last year. The Center for Global Energy Studies revised its forecast up by an even greater amount, from 1.2 mbpd in December to 1.4 mbpd. The stronger outlook is linked to expectations of economic recovery in OECD countries in 2014, particularly in the US.
The output of the Opec-11 (excluding Iraq) recovered by some 571,000 bpd in December to 27.9 mbpd – reversing four months of decline – according to data provided by ‘direct communication’ between Opec and national sources.
This came on the back of a rebound in the production of West African and Gulf member countries. Most notable were gains in Nigeria and the UAE, where production rebounded by some 150-300 kbpd following a downturn in violence and completion of field maintenance, respectively, stated the Kuwaiti lender.
Meanwhile, Iran – still restricted by sanctions on oil exports – was the only country to witness a substantial decline in December as output fell by some 80 kbpd to 3.2 mbpd. Iraqi production jumped 235,000 bpd, offsetting some of the declines elsewhere.
For 2013 as a whole, the total Opec production (including Iraq) averaged 31.9 mbpd – almost 1 mbpd below the level achieved in the previous year. This is largely attributed to major disruptions in Libyan output, as strikes at oil fields and export terminals shut-in most of the country’s oil production.
Output plunged from a post-revolution high of 1.5 mbpd in mid-2013 to just 0.2 mbpd by year-end. Production is expected to have recovered in January following the return of some 0.3 mbpd from the country’s key western field. However, output from Eastern Libya – which accounts for the majority of the country’s production – remains idle.
According to NBK, the non-Opec oil supplies are projected to increase by a significant 1.5-1.8 mbpd in 2014, of which 0.1 mbpd is expected to come from Opec natural gas liquids (not subject to quotas). If aggregate Opec output remains at current levels, the average output level should be lower in 2014.
But global supplies could still increase by 1.1-1.4 mbpd, following an estimated increase of 0.8 mbpd in 2013.
Despite this large increase in supplies, the steady upward revisions to forecasts of oil demand growth in 2014 seen over recent months imply somewhat firmer conditions than previously anticipated – though global oil inventories should still rise.
If non-Opec supplies come in at the lower end of expectations, then oil inventories could actually fall in 2014. This should cause oil prices to rise sharply. In this case, the price of KEC accelerates to $110 by mid-2014, and further thereafter, stated the NBK in its report.