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GDP growth forecast at 5 pct in 2014; oil sector to expand 4% Crude output slips

KUWAIT CITY, April 11: We maintain our real GDP forecast for Kuwait at 5.0% in 2014 (2013: 4.5%). Growth will be supported by resilient oil production, which forms the bulk of exports, on-going recovery in the non-oil sector, strong public and private investment in infrastructure projects and increasing foreign direct investment (FDI). Further growth is underpinned by the expansion of fiscal policy in the form of contributions and debt relief programmes introduced by the government, which will boost private consumption going forward.


Kuwait’s oil sector is expected to continue increasing, albeit at a slower rate by 4.0% in 2014 (2013: 4.4%) as a result of a gradual decline in  oil production. For non-oil sector, growth is likely to rebound to 5.2% in 2014 from 4.6% reported for 2013; on the back of further recovery in the manufacturing, construction and real estate sectors following strong government capital expenditure budget allocation for FY2013/14. Examples of government expenditure budget allocation include spending approximately 50% of the Development Plan’s budget by March 2014 on more than 1200 economic projects to reining in on spending on subsidies and welfare programmes. 
Our in house projection is much higher than the IMF’s conservative forecasts of 2.6%.

Production
In February 2014, Kuwait’s oil production remained at 2.90mln barrels per day, similar to December 2013’s output - the fourth straight month of below 3.0mln output since September 2014. Kuwait’s current production capacity is 3.3mln bpd and aims to increase it to 3.5mln bpd by 2015.
The slight drop in Kuwait’s oil production is in line with the slowdown in recent OPEC’s oil output and other member countries. OPEC crude production dropped to the lowest level in more than two years in December 2013, and has maintained the same output  For the months that followed.


OPEC is expected to produce at below the group’s agreed ceiling of 30mln barrels a day in the second quarter of 2014, at 29.6mln barrels a day, according to OPEC’s Monthly Oil Market Report. This is a decrease of 0.3mln barrels a day from December 2013. 
Kuwait’s efforts to develop its heavy oil capacity are part of the country’s plan to increase overall crude oil output to 4mln barrels per day by 2020 from current production of approximately 3.0mln barrels per day. Kuwait has approved bids worth a total of $12bln for major upgrades at two oil refineries, in a sign it is moving ahead with large infrastructure projects. The Clean Fuels Project is a specification upgrade and expansion of Kuwait’s largest refineries as part of its economic development plan.


Drilling for oil and gas deposits outside North America has hit the highest level in three decades, led by big exploration and production programs in the Middle East and Africa. More than 1,300 drilling rigs have been operating on average over the last six months, the greatest number since 1983. The boom is being led by the Middle East, where the number of rigs operating has tripled since 1999. More than 400 onshore and offshore rigs were drilling in the Middle East in December and January, the greatest number since the 1970s. Saudi Arabia also has more than 90 rigs, up from fewer than 20 in 1999. In recent years, observers have focused on the development of unconventional shale reservoirs and technically challenging frontier resources in ultra-deep water off the coasts of South America and Africa as well as in tough environments such as Central Asia and the Arctic.

Meanwhile, the price of Kuwait Export Crude (KEC) declined slightly to $103.1 per barrel as at  March 14, 2014 in line with other global oil prices. This compares to a slightly higher price of $106.33 as at 03 March 2014. US crude stood at $101.45 after being unchanged at $97.5 per barrel a month earlier. We predict that the price of KEC will trade in a range of $100 - $104 per barrel in 2014 on expectation of balanced global oil demand and supply.

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