Speaking with Saigon Investment, Mr. Tran Viet Ngai (photo), expressed his views further on the present status of the world oil market.
JOURNALIST: - Sir, how will the plummeting oil price in the world market affect other energy sectors?
- The sharp fall in crude oil prices reflects the abnormal developments in the oil market in particular and the world economy in general. This is a new shock to the world economy which is now weakening across countries, especially in countries with revenues that are based on crude oil exports.
There are many reasons for the sharp decline in oil prices. Firstly, it was negatively affected by the Covid-19 pandemic, causing a slowdown of economies which caused market demand to plummet for petroleum products. Secondly, the oil price war between Russia and Saudi Arabia triggered in March made the world oil prices plummet to such low levels. Thirdly, the market has begun to show signs of investors removing oil due to storage facilities being full.
Regarding the impact of falling oil prices on other energy sectors, I think that there will be a change in the structure of industries in coming times. There have been studies showing that the expected rate of profit for oil and gas projects may decrease from 20% to 6%, meaning that the revenue is accordingly decided if there are more investments in solar projects or wind energy. The decline of the oil industry is, to some extent, an opportunity for the green energy industry to thrive. However, this is in theory, but the fact that oil is still playing an important role for the economic sector also means it is difficult to replace.
- In your opinion, for how long will this fall in oil price stay? How does it affect the retail price of gasoline, and at the current low price, should Vietnam continue to exploit oil, or temporarily cut production to avoid losses?
- I think the oil price drop this time, though extremely low, will not stay for too long but will recover. As the Covid-19 pandemic is gradually brought into control in many countries, the market demand for oil will return, which will then push prices up again. In addition, the war on oil prices between Russia and Saudi Arabia has now ended, with the two countries reaching an agreement in a truce, so the price of oil is no longer uncertain. Besides, we can see that the sharp decline in oil prices in recent days has mainly occurred in local markets, not in all markets.
For example, the phenomenon of oil price in the US market fell freely on 20 April, but this only happened in the US and also for a very short time. Due to a sharp decline in US gasoline demand over the past few weeks, the excess gasoline supply has pushed retail price down. In addition, the price of oil was reduced so that many investors were forced to sell because there were no stockpiles. Oil price in the US has now gradually recovered after falling sharply.
The sharp decline of crude oil price will impact retail gasoline price, but the drop will be negligible as retail gasoline price in the market also includes many other overhead costs in addition to wholesale gasoline price. In fact, it is not the crude oil price but the wholesale price of gasoline that clearly reflects the retail price of gasoline.
Regarding whether Vietnam should continue to exploit oil or temporarily cut production to avoid losses, I think it is necessary to step up exploitation. Domestic demand for gasoline is still high, especially when economic activities and production are gradually recovering after there are signs of the Covid-19 pandemic gradually being brought under control. At present, petroleum from our exploitation only meets 25% to 30% of domestic market demand, but the rest must be imported from other countries.
- How do you evaluate the import of petroleum reserves at this time?
- I think this is a "golden" time to import reserves. Recently, the VEA has sent a document to the Government and other related ministries, proposing to direct petroleum production and trading enterprises to import refined gasoline for reserves. Vietnam is currently a net importer of petroleum products. The low oil price is a challenge but also an opportunity if we take advantage and store when oil price is low. We need to be proactive in this, because as I said the price of crude oil this time is very low, but will not stay the same for long. If we do not take advantage of it, we will miss this opportunity.
When we reserve gasoline, it also indirectly helps stabilize domestic prices and helps to curb inflation. Stabilizing domestic gasoline price is very important for businesses and households. Businesses such as fishing, aquaculture, manufacturing and service sectors use a lot of gasoline, and when the price of oil decreases, input costs are reduced, profits are increased, thereby increasing spending and reinvestment. Currently, the amount of petroleum imported from outside Vietnam accounts for more than half the volume used in the country, so by importing petroleum at this time we will benefit quite substantially.
- Thank you very much.