Kuwait to record $50 billion budget surplus
Most analysts now see demand growth of 0.9 to 1.0 mbpd in 2013
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Kuwait's budget surplus could be in the rabge of KD11.9 billion to KD14.4 billion ($42 billion to $50.9 billion) for the current fiscal year backed by high oil revenue before allocations to the Reserve Fund for Future Generations (RFFG), said a report.
The crude oil prices saw steady gains through January, thanks to a combination of an improved outlook for the global economy and news of Opec production cuts, according to the report by National bank of Kuwait (NBK).
The price of Kuwait Export Crude (KEC) rose from $107 per barrel at the end of December to $112 by early February, averaging $108 for the month. Brent crude climbed as high as $118 on February 1, up $6 in a month to its highest level since May, the country's top lender said in its review.
Analysts have revised up their forecasts for oil demand growth in 2013, though due partly to a base effect from a stronger 2012. Still, oil fundamentals might loosen this year unless Opec cuts output further, it added.
Meanwhile, on the supply side, Saudi Arabian crude output fell to its lowest level in 19 months – 9.2 million barrels per day (mbpd) – in December, a drop of 0.4 mbpd from November.
Saudi authorities linked this to a fall in seasonal demand from its customers rather than a deliberate change in policy. Nevertheless, the move was a signal that Opec is prepared to respond quickly to signs of looser market fundamentals.
Forecasts for global oil demand growth in 2013 have generally been revised up over the past month, thanks mainly to estimates of stronger demand in the fourth quarter in 2012 than previously thought, which generates a higher base starting point for this year, said the NBK in its report.
Most analysts now see demand growth of 0.9 to 1.0 mbpd in 2013 (or around 1.1 per cent), up around 0.1 mbpd from a month ago though slightly down on 2012 levels. In OECD countries, demand is once again expected to fall (-0.4 mbpd), though by less than in 2012 thanks to improved economic fundamentals, it stated.
According to NBK, the Total Opec production (including Iraq) dropped considerably in December to below 30.4 mbpd. This was driven by large declines in Iraq, where output plunged by about 197,000 bpd to a 6-month low of 3.0 mbpd – though official figures point to larger declines of some 255,000 bpd.
With modest oil demand and strong non-Opec supply growth expected in 2013, Opec may need to remain active to prevent a weakening in oil markets and prices, the top Kuwaiti bank stated.
Alternatively, non-Opec supplies could receive a boost from stronger than expected North American production or a recovery in its output elsewhere. In this case, the price of KEC falls sharply to below $100 pb by mid-2013, said the NBK report.
However, this will prompt Opec members, specifically in the GCC, to make big production cuts in order to stabilize prices in the second half of the year, it added.
On the budget impact, NBK said with just two months remaining in the current fiscal year, the price scenarios are unlikely to impact budget outcomes for FY 2012/13 much, and the price of KEC is expected to end up at $105 - $106 pb.
"If as we expect, spending comes in 5-15 per cent below the government’s forecast, this year’s budget surplus could end up between KD11.9 billion and KD 14.4 billion before allocations to the RFFG," said the top Kuwaiti bank in the report.
The projections for the next fiscal year are linked to our three scenarios, which yield oil prices within the fairly narrow range of $98 to $103 pb in FY 2013/14, it stated.
"According to press reports, budgeted spending for the next fiscal year is set at KD 21 billion, although the number could subsequently be revised," said the report.
Assuming that spending comes in below budget, we project a surplus of between KD8.7 billion and KD12.1 billion before allocations to the RFFG. This would equate to18 to 25 per cent of forecast 2013 GDP, and would represent Kuwait’s 15th successive budget surplus.
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