Kuwait budget expenditures may fall by 5-10 per cent below the government’s forecast of KD11.3 billion, thanks to ballooning oil revenues, a study by National bank of Kuwait (NBK) said.

This may leave an overall surplus of KD7.7–9.1 billion before the allocation of 10 per cent of revenues to the 'Reserve Fund for Future Generations,' NBK said in its latest economic brief on the oil market and budget developments.

'We see oil revenues reaching KD17.4–18.2 billion this year, which is 95 per cent of all budget revenues, compared to KD14.5 billion in 2006/07,' it said.

'The prospects for the government’s finances remain extremely impressive. Under our base case, the average price of KEC for the financial year 2007/08 is some $74 per barrel, or more than double the $36 assumed under the government’s ultra-conservative budget assumptions.'

Meanwhile, crude prices ended the year on a confident note with price of Kuwait Export Crude (KEC) standing at around $86 per barrel, up from $80.5 at the beginning of the month, the study said.

For 2007, KEC averaged $66, up from $58 in 2006. Although there remains uncertainty about whether or not current highs will be sustained through 2008, modest falls would still leave Kuwait’s coffers flush with liquidity and the country’s fiscal position extremely secure, the study noted.

As such, the oil sector will continue to bolster the macroeconomic picture during 2008, even if – as a result of trimmed prices – its direct impact on economic growth fades.

Indeed, there could even be scope for fresh impetus with the price for lighter, sweeter crude set to re-test the psychologically significant $100 mark at the start of the year.

The price of West Texas Intermediate (WTI) crude increased from $89 at the end of November to $96 by the end of December, while the price of brent crude rose from $89 to $94 over the same period.

NBK study noted that although evidence of a housing sector-driven economic slowdown in the US was mounting, there was uncertainty over the extent to which this will affect global oil demand.

Some observers argue that the growth dynamic in other parts of the world – particularly in emerging markets - remains essentially intact.

Finally, although a US economic slowdown could negatively affect the demand for oil, it may also be associated with further weakness in the US dollar, which would buffer the impact on global demand.

In broader terms, few analysts expect the overall picture of tight oil market fundamentals to change any time soon, suggesting that in the short-term at least, prices are unlikely to recede far from their current highs.

Nevertheless, opinion remains divided over the likely path of incremental global oil demand during 2008, the study said.

The global supply chain has remained stretched owing to a combination of Opec production restraint, refinery shut-ins, attacks on oil pipelines and disappointing growth in non-Opec supplies – and these issues persisted into the final two months of the year.

Despite a pre-announced commitment to increase production by 0.5 mbd to 26.8 mbd from November 1, output of the Opec 10 (excluding Iraq and Angola) actually fell by 0.3 mbd in November owing to maintenance work at the Zakum field in the UAE, which more than offset production increases elsewhere.

The Centre for Global Energy Studies predicts weak growth of 0.6 mbd (0.7 per cent) on concerns about the state of the US economy and the impact of record high oil prices on the global economy.

The International Energy Agency, however, sees global oil demand growing by an extremely robust 2.1 mbd (2.5 per cent), driven by strong growth of 1.5 mbd (4 per cent) from non-OECD countries and an acceleration in demand growth from 0.4 mbd (5.2 per cent) to 0.5 mbd (5.7 per cent) in China.

Interestingly, Middle Eastern countries are expected<