Oil helps Kuwait register huge budget surplus

Published March 21st, 2013 - 08:43 GMT
Kuwait budget surplus to top $50 bn in 2012-13
Kuwait budget surplus to top $50 bn in 2012-13

An oil price of between $101 and $118 per barrel in 2013-14 could generate a budget surplus for Kuwait of up to KD16 billion ($56 billion) next fiscal year, following a surplus of KD14 billion ($50.4 billion) in 2012-13, a report said.

Crude oil prices continued to rally in the first half of February on increased optimism over the global economic outlook, but these gains were subsequently reversed, helped by a stronger US dollar, added the latest Kuwait Economic Brief released by the National Bank of Kuwait (NBK).

Forecasts for oil demand growth in 2013 have edged higher as a result of better-than-expected 2012 data. Still, Opec may need to cut production further to prevent prices from falling, the report said.

With just one month remaining in the current fiscal year, the price of Kuwait Export Crude (KEC) is expected to end up at $107 per barrel. If the spending comes in 10-15 per cent below the government’s forecast, this year’s budget surplus could end up between KD13 billion and KD14.4 billion before allocations to the Reserve Fund for Future Generations (RFFG).

Budgeted spending for the next fiscal year is set at KD21 billion, the report said.

Assuming that spending comes in 5-10 per cent below budget, NBK projects a surplus of between KD 9.6 billion and KD15.9 billion before allocations to the RFFG. This would equate to 20 per cent-33 per cent of forecast 2013 GDP, and would represent Kuwait’s 15th successive budget surplus.

Oil demand outlook:

Analysts have generally edged up their forecasts for global oil demand growth in 2013 over the past month. However, this mostly reflects better-than-expected outturn data for 4Q 2012, rather than a fundamental change of view. The Centre for Global Energy Studies (CGES), for example, sees growth of 1.03 million barrels per day (mbpd), or 1.2 per cent, up from 0.98 (1.1 per cent) last month.

The International Energy Agency (IEA) is almost alone among forecasters in revising its oil demand growth projections down – from 1.1 per cent to 0.9 per cent. But this is probably a timing issue, tied to the lower world economic growth projections released by the IMF in January.

This could subsequently be revised in light of recent data. Although non-OECD countries are still the driving force behind global oil demand growth in 2013, any year-on-year growth improvement will stem from the OECD, where demand is expected to fall by less than before.

Oil supply outlook:

Total Opec production (including Iraq) dipped for the fifth consecutive month to 30.3 mbpd in January. Iraqi oil output saw a slight recovery of about 27,000 bpd to 3.03 mbpd, contradicting official figures which show that production fell below the 3.0 mbpd mark. Planned capacity expansions of some 500 kbpd in 2013 are being hampered by transportation infrastructure bottlenecks. These include delays in both pipeline construction and in the expansion of storage facilities at export terminals.

Non-Opec supplies are projected to increase by more than 1 mbpd in 2013, following a rise of 0.8-0.9 mbpd last year. Less than one-quarter of this increase is expected to come from Opec natural gas liquids (NGLs).

Strong North American production is likely to account for the majority of the rise in non-Opec supplies this year. In total, global supplies are expected to rise more modestly in 2013, following a rise of around 2 mbpd last year, as cuts in Opec output partially offset stronger non-Opec supplies.

Price projections:

Cuts in Saudi Arabian output should help keep oil prices firm in the first half of the year, though the market could soften in 2H 2013. Based on the CGES’s slightly more optimistic view of a 1.1 mbpd increase in global oil demand this year, significantly lower Opec production and an aggressive 1.7 mbpd increase in non-Opec supplies, global oil inventories could rise by some 0.2 mbpd in 2013. In this case, the price of KEC would drift down gently in the second half of 2013, but will remain supported at above $100 per barrel.

If, on the other hand, growth in non-Opec supplies is 0.3 mbpd lower than expected, then demand may exceed supply and prices could rise sharply. In this scenario, the price of KEC could accelerate to just under $120 per barrel in 2H13.

Alternatively, growth non-Opec supplies could turn out stronger than expected, resulting in a larger stock-build of around 0.5 mbpd. In this case, the price of KEC would slip to just under $100 per barrel in the second half of the year, prompting Opec to make production cuts in order to prevent prices from sliding further.

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