JEDDAH – Oil market is expected to remain weak during the rest of 2012 amid decrepit global economic growth, Kuwait-based Al-Shall Economic Consulting Company said in a report. "Because the market is currently weak, it is anticipated that the countries which exceeded their official quota would begin its reduction, as started already by Saudi Arabia. OPEC believes that any slight increase in the remaining part of the year will cover production from outside OPEC," the report said. "OECD stocks - the advanced states and stocks of states outside it are measured by consumption days at their highest rates; therefore, the oil market will remain weak during the rest of the year." It added that this development would oblige OPEC members, including Kuwait, to cut its oil production levels. Last May, Kuwait produced 3 million barrels per day, according to one source and about 2.858 million barrels per day according to another. Kuwait consumes about 300 thousand barrels per day; thus only 2.7 million barrels per day (or 2.558 million barrels per day in the second case) are exported, this operation can be used as an index. It, however, warned that the production cut may cause budget deficit in Kuwait and several countries. "This means that there are between 780,000 barrels per day and 638, 000 barrels per day provisional surplus, but they prevent the occurrence of actual budget deficit. If Kuwait complies with its prescribed quota, as decided in OPEC's latest meeting (2.220 million barrels per day), its exports will drop to 1.92 million barrels per day with a value of KD 18.1 billion per annum (at a price of $92.38 per barrel on June 20, 2012 and exchange rate of 279 fils per US dollar) and with a budget deficit of KD4.6 billion. But the deficit won't be realized in reality because of the increased production and because prices change." Oil prices regained some ground Friday after two days of sharp losses, but the mix of strong production in North America and expectations of dampened global demand kept a lid on prices. In New York West Texas Intermediate crude for August delivery ended $1.56 higher at $79.76 a barrel. London's benchmark Brent crude for August delivery added 90 cents to $90.98 a barrel, after hitting an 18 month low of $88.49 a barrel in early deals. The prices were still well below those of a week ago, when WTI was at $84 and Brent nearly $98. "Oil market sentiment has worsened significantly over the past week," in part "by a hardening of attitudes over the likely duration and scale of euro area problems," said Barclays Capital analyst Amrita Sen. Demand expectations lost ground this week after data signaled more weak economic growth in the United States, China and Europe, and US Energy Department figures showed an unexpected expansion of stockpiles as Canadian and US production mounts. Facing the challenge of oil revenues decline, Al-Shall stressed that prudent policy should be adopted to bring Kuwait back to the flexibility in controlling its economic potentials. "There should be a nation agreement on a law that fortifies public finance, or freeze its expenditures at an agreed ceiling for three forthcoming fiscal years. Then it will not hurt to submit proposals with financial costs outside the state's budget, after their approval, for a three-year term. It does not harm either to introduce tax policies that would begin by some additional fees on luxurious articles and the extravagance in consuming subsidized services that comes second on the global level in wasting natural resources. The initial aim of the taxes is to reduce waste, restoring balance between the citizenship rights and obligations, in addition to setting foundations for taxation policy to build on it. Once that is accomplished, the state will begin restoring its ability to control its future. Meanwhile, the weekly report of Oula Wasata Brokerage Company, ascribed the slight increase on US crude prices in the closing sessions of this week to the tropical storm that hit Gulf of Mexico. – SG
