“Oil price outlook and sharing experiences for sustainable development” roundtable

[Hanoi, September 8, 2022], Vietnam Investment Review hosted a roundtable titled “Oil Price Outlook and Sharing Experiences for Sustainable Development” on September 8 in Hanoi, with the presence of 80 participants from departments, sectors, the corporate sector, international firms, and the press

Due to the high cost of manufacturing and delivery of products and services, the recent swings in fuel prices continue to have a significant influence on the income, expenditures, and lifestyles of individuals as well as enterprises, resulting in an increase in CPI. In the context of robust economic growth and global political unpredictability, fuel prices have soared far beyond all previous forecasts, and despite the fact that energy prices are now slightly lower, there remains no inkling that fuel prices will be stabilised any time soon, leaving the possibility of further price increases.

In particular, the globe is experiencing an energy crisis, and Europe is preparing for a severe winter, so governments are expanding their petroleum stockpiles, boosting the likelihood that oil prices will continue to be fractured. In the meantime, the domestic gasoline price is heavily influenced by the global gasoline price since the control of the oil supply is insufficient to fulfil economic demand.

The roundtable was convened in order to obtain a better understanding of how oscillations in fuel prices influence the domestic economy and effective strategies to cope with these fluctuations in order to achieve stable and sustained growth.

At the roundtable, representatives from the Ministry of Planning and Investment (MPI), economic experts from organisations and associations, and a significant number of domestic and foreign business representatives shared their outlooks on the energy crisis; the consequences of oil price volatility on socioeconomic advancement; and the plethora of practical solutions and valuable suggestions to conquer the immediate challenges, stabilise manufacturing and improve transportation.

Le Tuan Anh, director general of the Department of Industrial Economy said: “The government has implemented many policies and solutions to stabilise the macro-economy and support businesses, which have achieved some good results. However, to adapt to the rising cost of gasoline and oil, businesses should not only adjust the selling prices of some products but also apply a number of solutions like making the most of available resources and maximising material savings to reduce costs.”

Other solutions, according to Tuan Anh, include improving management, closely monitoring production and business processes, and limiting losses. Businesses should also negotiate with transport providers to avoid a significant increase in the freight rate. “Meanwhile, they should look for new suppliers of other materials to secure good materials with the least price fluctuations. More investment should be made in upgrading production lines to improve the working environment and increase productivity to limit rising product costs,” added Tuan Anh.

At the roundtable, economic experts from organisations and associations as well as several local and foreign business representatives shared their insights into the energy crisis and the impact of oil price changes on socioeconomic development. The speakers offered many practical solutions and useful suggestions in order to overcome the immediate difficulties and stabilise production and business activities in the direction of sustainable development. The proposals aim to contribute to a green energy transition to strengthen Vietnam’s energy security.

In particular, Phan Duc Hieu, Standing Member of the Economic Committee of the National Assembly, discussed the impact of fuel prices on the business operations of the general economy and the business sector, as well as initiatives for governmental policies to encourage and assist economic activity.

Hieu shared: “Petroleum is regarded as an international business with a number of risk factors. Thus, it should take international practices into account. The amended Law on Petroleum Law only covers the exploration and production of upstream oil and gas. Meanwhile,  midstream and downstream oil and gas activities like petrochemical refining, fertiliser production, and electricity generation are governed by other laws.”

According to Hieu, the market context and conditions in Vietnam show that it is necessary to synchronise the petroleum law with the provisions of other laws. For example, the construction of a gas pipeline is governed by a number of other laws. Therefore, the provisions in the draft amended law should facilitate the implementation of oil and gas exploration and exploitation projects in series. This will help avoid legal conflicts as well as the cumbersome application process of submitting documents to many agencies and ministries.

As a consultant to the MPI for policies on supporting businesses nationwide, Luong Van Khoi, vice president of National Centre for Socio-economic Information and Forecast (NCIF), assessed the current circumstances of operational processes impacted by oil price volatility and advises the government on developing policies to assist businesses in overcoming obstacles resulting from oil price fluctuations.

Khoi cited the macroeconomic report in the first 8 months of 2022, showing that the country’s macroeconomicswere stable, inflation well controlled, and major economic balances ensured. “August’s CPI increased by 3.6 per cent over the same period last year and there was a slight decrease in the prices of food, foodstuffs, and construction materials,” Khoi said. “The country not only makes sure that there is a sufficient supply of electricity and gasoline, but it also immediately orders inspections and punishes petrol and oil retail businesses that break the law. A proactive operation plan is formulated to create more room for the support of gasoline prices as necessary.”

Vietnam’s economic growth is decreasing by 0.38 percentage points and 0.84 percentage points respectively when compared with the economic growth that would have occurred without Russia-Ukraine tensions, Khoi added. Accordingly, inflation in Vietnam will climb by 1.8 percentage points in 2022 and 1.62 percentage points in 2023.

Meanwhile, Kenya Maeda, senior executive officer of Integrated Supply & Trading Crude & Global Business Idemitsu Kosan Co.,Ltd, discussed the importance of supply chains and their characteristics in the petroleum sector, including the global price trend of fuel products, especially in Asia.

Maeda said: “Global crude oil demand in the medium and long term is expected to increase. Based on the expansion or closure plans from refineries in the Asian region, we predict that the medium and long-term supply of fuel products will not satisfy the increased demand. In order to maintain a stable supply of fuel products with respect to the national energy security (even in a market without a stable outlook in the future), it is necessary to promote the entire/robust supply chain for fuel products from purchasing input materials and production to sales and consumption.”

On top of the pandemic impacts another new issue, excessive pricing, is having an enormous impact on the transportation industry functioning inside the logistics system. According to Le Quang Trung, vice president of the Vietnam Business Logistics Association, the abrupt spike in gasoline prices has a considerable effect on organisations, the transportation system, and logistics operations. Petrol expenses currently account for more than 30 per cent of the overall cost of logistics.

As a mediator between both the buyer and the seller, Nguyen Duc Dung, deputy general director of Mercantile Exchange of Vietnam (MXV), provided an insight into business operations that converse with fluctuations in the cost of gasoline and advised businesses on how to stabilise production in light of volatile oil prices.

According to Dung, around the world, petroleum companies frequently use price hedging tools such as futures and options contracts to fix import and export prices over a period of months or even years. As a result, input and output prices remain steady. They have more room to control the market amidst price swings.

“I hope we will soon synchronise the policies of the ministries and agencies. Thus, petroleum and oil businesses are more confident in using price hedging tools effectively. Businesses under the Vietnam Petroleum Association have great interest in these price hedging tools. However, there are still many obstacles in terms of policies to effectively implement these tools,” Dung stressed.