Surplus of Kuwait's state budget for the 2013-2014 fiscal years is projected to range between KD 8-11 billion provided oil prices remain within the range of USD 94-100 per barrel, according to a report released by the National Bank of Kuwait (NBK) on Saturday.
The NBK report said although the closing accounts for FY2012/13 have not yet been released, "we expect the budget to have recorded a massive surplus as oil prices averaged a record USD 107 pb for the fiscal year.
"If, as we expect, spending comes in at 10-20 percent below the government's forecast, then last year's budget surplus could end up between KD 12.8 billion and KD 15.0 billion before allocations to the Reserve Fund for Future Generations (RFFG)." The projections for the current fiscal year 2013/14 are linked to our three scenarios, which yield oil prices within the narrow range of USD 94 to USD 100 pb.
Preliminary budgeted spending for this fiscal year is set at KD 21.2 billion. Assuming that spending comes in at an improved 5-10 percent below budgeted expenditures, "we project a surplus of between KD 8.1 billion and KD 11.2 billion before allocations to the RFFG. This would equate to 17 percent-23 percent of forecast 2013 GDP, and would represent Kuwait's 15th successive budget surplus." Elaborating, the NBK report said crude oil prices trended upwards in early July on higher seasonal demand. But fresh concerns over the global economy have added to expectations of weakening market fundamentals. "Oil demand is expected to rise by a modest 0.8 mbpd in 2013, compared to 0.
9 mbpd last year. Given rising non-OPEC supplies, OPEC will need to cut production to prevent a large drop in prices. "An oil price of between USD 94 and USD 100 pb in FY13/14 could generate a budget surplus for Kuwait of between KD 8 and 11 bn this fiscal year, following an estimated record surplus of KD 15 bn in FY12/13.
Crude oil prices climbed higher in early July, after trading broadly flat through May and June. The price of Kuwait Export Crude (KEC) rose from a trough of USD 97 per barrel (pb) in late June to USD 103 by July 12th. Similarly, Brent crude prices climbed by some USD 9 to USD 109 - the highest level since early April. Both crudes are still some USD 11 off their February peaks. Meanwhile, West Texas Intermediate (WTI) - the main US benchmark blend - accelerated by some USD 12 to USD 106, exceeding the USD 100 mark for the first time since May of last year. In the process, the Brent-WTI spread narrowed to its lowest in two and a half years.