Sliding oil prices to have ‘barbell impact': ANZ

An engineer operates equipment at Dung Quat Oil Refinery in the central province of Quang Ngai. ANZ Bank experts state that the net impact of falling oil prices will be marginal for Viet Nam. - Photo news.zing.vn

The correction in international prices of oil has entered its seventh month, spelling a significant positive for most of the region. However, the economists said the net impact across trade and expenditure patterns will be marginal for Viet Nam, which is both an exporter of crude oil and an importer of refined products.

The country's oil consumption has risen sharply, posting a 7.5 per cent compound annual growth over the last two decades. This growth is the fastest in the region, overtaking China, and the dynamic has contributed to switching Viet Nam from a net oil producer to a net oil consumer since 2010.

"In light of the surge in electronics production over the last three years, we expect oil consumption to continue rising as total energy needs keep pace with demand for manufacturing growth," the experts predicted.

The price of Brent crude oil has pulled back by nearly 57 per cent since last July. ANZ expects Brent prices to average at US$48 per barrel in 2015, seeing a further downsizing risk during the first half of the year and rising up to $58 per barrel by December.

The economists concluded that the persistent decline in oil prices has exacerbated the already-soft price gains in non-food and non-oil items in the consumer price index basket.

They further said the effect on state finances is marginal as the decline in the subsidy bill is accompanied by a decline in export crude oil's tax revenues. The slide in oil prices has not placed the trade balance at risk as the share of oil-related trade has steadily declined since 2009.

In 2014, crude oil accounted for 5 per cent of Viet Nam's total exports, down from 10.8 per cent in 2009. Petroleum products now account for 4.9 per cent of the total import bill, down from 8.9 per cent, five years ago.

Last year, Viet Nam exported 9.2 million metric tonnes of crude oil and imported 8.4 million metric tonnes of petroleum products. It reached a narrow surplus of $95.7 million in oil-related external trade.

According to the BP Statistical Review of World Energy 2014, Viet Nam holds 0.3 per cent of the world's proved oil reserves estimated to be around 4.4 billion barrels. In the Asia Pacific region, the country has the highest reserve-to-production ratio at 34.5, overtaking traditional oil exporters, such as Brunei, Indonesia and Malaysia.

With Viet Nam's sole refinery Dung Quat producing around 100,000 barrels per day, it falls short of the average daily consumption of 378,000 barrels.

"Despite the prospect of a new normal in low oil prices, we see the need for more investment in downstream projects. Consequently, exports of crude oil should decline to support local consumption," the economists stated.