Oil surges, non-oil activity moderates, equities suffer

Oil prices, which have been on an upward trajectory for much of this year, due to throttling of exports by the Organization of Petroleum Exporting Countries (OPEC) and several of their non-OPEC allies amid a rise in demand, received a further boost in October on the back of the ongoing regional turmoil. Meanwhile, non-oil activity has moderated from the steady rise witnessed in previous quarters, even as equities experienced a significant decline in performance.

In its quarterly assessment of Kuwait’s economy, the National Bank of Kuwait (NBK) noted that at the end of the third-quarter of the year, the price of Kuwait Export Crude (KEC) reached US$98 per barrel, rising by 26 percent compared to the levels recorded at the end of last June. The bank added that the increase in oil prices, which were driven by tightening market fundamentals, could help boost Kuwait’s financial position and increase investment in infrastructure.

However, while the higher oil prices have led to a surge in revenues, the reduction in oil-production, arising from the country’s commitment to OPEC-mandated output cuts, represents a major challenge for Kuwait. The country is aiming to make the most of its new Al-Zour refinery, which has a production capacity of about 650,000 barrels of clean fuels per day that are in high-demand in global markets. But faced with cuts to its production, Kuwait has been diverting part of its crude-oil exports to the refinery, thereby lowering export revenues.

In its evaluation of the non-oil sector, the bank maintained that non-oil economic activity has moved at a moderate pace in recent months, and that growth in domestic credit and consumer spending has also slowed compared to prior levels. The economic slow-down and tighter monetary conditions have has impacted the market, with equities declining significantly in the third-quarter of 2023.

Main indices on the Kuwait Stock Exchange (KEC)dropped sharply with several leading entities and banking stocks suffering losses in the middle of systematic liquidation by electronic accounts, financial portfolios, and investment funds. Decline in eight sectors led to an appreciable drop in general indicators, with the market value losing KD840 million in just two sessions before monthly closings.

Analysts expect that this decline will majorly impact the performance of investment funds by the end of October, with data indicating they may incur substantial losses. For their part, investment sources indicated that global and regional financial markets are being affected by wars and political developments.

The experts added that the decline of the KEC can be attributed, among other factors, to the absence of investment alternatives in the market, the lack of flexibility in applying standards and controls on companies, and the need for groups to take the initiative to support their stocks through available tools and provide positive economic data. These factors are essential to provide a suitable environment for the stock market to fully recover.

The bank concluded its quarterly assessment by noting that overall, while Kuwait faces challenges in both the local and international crude oil markets and growth of consumer spending slows, there are several positive developments that could indicate a better economic outlook for the country in the coming year.

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