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Vietnam's oil refining industry reported heavy losses due to falling oil prices

Vietnam's oil refining industry reported heavy losses due to falling oil prices

Thursday 23, 04 2020
With 600,000 barrels of WTI oil being sold at negative price on April 20, the world crude oil market experienced unprecedented moments.

Even if Vietnam depends on Brent oil price in Singapore market, it will inevitably suffer huge losses from this event.

World oil prices plummeted

Oil and gas experts in Vietnam said that the trading results on April 20 for 600,000 barrels of oil at WTI prices are trader transactions. In other words, they are derivative oil trading contracts. However, the fact that sellers paid USD 37 per barrel to buyers shows that the world oil supply has exceeded the record level.

In Vietnam, prices of crude oil and imported gasoline depend on Brent oil prices in Singapore market. When WTI oil price was at nearly USD -37 / barrel on April 21, Brent oil price was still at USD 26 / barrel and price for oil delivered in June is at USD 20.43 / barrel, and that in December remains above USD 32 / barrel.

That means WTI oil prices do not have much immediate impact on the domestic petroleum market, from finished gasoline sold to people (because it was imported last month) to the crude oil sold according to contracts signed months ago. Leaders of the Ministry of Industry and Trade said that the price of imported petroleum in Vietnam is at USD 20-25 / barrel.

According to Decree 83, the selling price of petroleum in Vietnam is currently adjusted on a 15-day cycle according to Brent oil prices and other costs and taxes.

Heavy loss

Vietnam's oil refining industry reported heavy losses due to falling oil prices

The leader of the Vietnam Oil and Gas Group (PVN) said that the crude oil price crisis has had a strong impact on PVN since the beginning of the year. The consumption of petrochemical products and the efficiency of oil and gas exploitation have dropped sharply.

Revenue has not been enough to offset the exploitation costs, resulting in the closure of mines. Oil sales and contribution to budget revenue from crude oil are now much lower than planned (USD 60 / barrel). When the price of oil falls below USD 30 a barrel, the revenue from crude oil is only USD 2,362 billion.

State budget remittances will also fall from USD 1.59 billion to USD 806 million. In other words, for the first time in history, it was impossible for Vietnam’s oil industry to contribute USD 1 billion per year to the State budget. "For every one US dollar of crude oil price reduced, the revenue of PVN would decrease by VND 2.2 trillion per year" said an oil expert from PVN.

In the current low oil price situation, the advantages brought by low-price petroleum imports cannot offset the losses caused by oil price crisis due to its unpredictable fluctuations. Currently, the gasoline inventories of Nghi Son and Dung Quat refineries are very high, about 70-85% and continue to be at risk of increasing rapidly as customers continue to postpone their orders due to low consumption and capacity.

On April 20, Binh Son Refinery and Petrochemical Joint Stock Company (BSR) announced its separate financial statements. In Q1 / 2020, the company saw a loss of USD 2332 billion after tax. This is the second consecutive loss since its initial public offering in 2018.

BSR's negative profit results is not surprising because Brent price in the first quarter plunged more than 70% (from USD 68.34 / barrel on January 3 to USD 17.68 / barrel on March 31), which sharply increased inventories, leading to losses.

“We suffered three major crises at the same time. Firstly, the market has barely any demand for this product. Secondly, we are not free to travel to handle the crisis of inventory losses, and finally, the price difference between finished product price and selling price is very large" said a BSR leader. He said that the price of oil after processing at the present time is higher than the price of gasoline sold in the market, which means the loss cannot be saved.

​>> How does the negative oil price due to COVID-19 affect the Vietnamese economy?

Source: thesaigontimes

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