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Large Cap4,023 0.80
Med Cap3,850 0.49
Small Cap4,907 0.91
Micro Cap8,519 0.62

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Oil Market and Budget Developments

Source: NBK Capital

Crude prices recover footing on signs of tightening fundamentals... Kuwait budget surplus could reach KD 6 bn in FY2009/10…

In its latest economic brief on the oil market and budget developments, NBK reports that, crude oil prices witnessed considerable volatility through July. After dropping back nearly $10 to $61 per barrel (pb) in the first half of the month, the price of Kuwait Export Crude (KEC) recovered nearly all of its losses as the month drew to a close, reaching $69 on July 27th. If sustained, this momentum could push prices above their post-crisis highs. Prices have more than doubled from their December lows.

In part, the rally could be viewed as a sign of successful attempts by global policy makers to induce economic recovery through ultra-easy monetary policy. Equities and property markets benefited as well. But there are also more concrete signs that oil market fundamentals are tightening; the US crude inventory overhang that existed in the spring is steadily being eliminated through a combination of OPEC production cuts and traditional seasonal forces. Some analysts are highlighting improved economic performance in Asia as a further factor boosting oil market sentiment, symbolized by better-than-expected annual growth of 7.9% in oil-hungry China’s 2Q 09 GDP. A mildly positive spate of 2Q corporate results – particularly in the US - may have helped, too.

Prices of other major global benchmark crude prices also rallied back towards the $70 pb mark in the second half of July and now stand just short of their June highs. The price of both West Texas Intermediate (WTI) and Brent averaged $64 pb in July to the 28th of the month, down slightly on the average for June but still up around 50% since January. Unsurprisingly perhaps, futures prices have rallied by much less – by around 12-13% since January for the December 2012 contracts – reflecting the deep discounts that were being applied to spot prices at the start of the year. But this underperformance has not stopped renewed calls by some US authorities for limits on positions of futures traders, which they blame for imparting excess volatility on the market as a whole. Such a move – currently under discussion at the US Commodity Futures Trading Commission – could have a significant bearing on the volume and manner in which oil futures are traded.

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