Global oil prices in 2015 fell to record lows thanks to the excess of supply over demand, which has clearly benefited local consumers but eaten into government revenue, 10% of which comes from crude exports.
As of December 2015, global oil prices plummeted to well below US$36 a barrel (US$37.93 for Brent oil in London and US$35.62 for WTI oil in New York), which mean that prices dropped by one third compared with May 2015 and nearly two thirds compared with the peak in June 2014. In Vietnam, the oil sector still accounts for 10% of total government revenues though this figure is shrinking. Falling prices were advantageous to importers and consumers of oil products but created mounting pressure on crude oil drilling companies and exporting countries, leading to sharp falls in oil companies’ stocks and the overload of crude oil storage facilities around the world.
The sharp fall in oil prices came as a result of bright prospects of the US economy and expectations of a stronger US dollar; increased shale oil output and larger supply from Iran after an agreement on the Middle Eastern country’s nuclear issue had been reached; OPEC’s decision not to cut their output (total output by 12 OPEC members in September was 31.72 million barrels a day, equivalent to about one third of total global output) and to keep preferential prices to maintain market share. At the same time, output by non-OPEC countries increased by 6 million barrels a day over the last six years and cheap oil was smuggled out of the Syrian territory controlled by the Islamic State, which made it even harder for oil prices to climb up.
According to the International Energy Agency, oil prices will stick around US$50 a barrel until end of this decade and will not hit US$85 until 2040 due to concerns over global warming, a rise in clean energy output and increased use of energy-saving appliances, and lower oil demand due to economic slowdown in China and many emerging countries.
In 2016 global oil consumption is estimated at 95.7 million barrels a day. Total output of non-OPEC countries is projected to fall by 500,000 barrels a day and that of the US to 12.56 million barrels a day from 12.75 million in 2015. From now until 2020, global oil demand will increase by less than 1% and around 5% in the next two decades. Global oil demand will not reach 103.5 million barrels a day until 2040 from the current level of 94.5 million barrels a day. In 2040 oil demand from advanced economies such as the US, Japan and many countries in the EU will drop by 10 million barrels a day, which is less than needed to speed up oil price recovery.
However, based on the appropriate average production costs and relevant parties’ tolerance to negative impacts from falling oil prices, it can be forecast that oil prices have bottomed out and will recover in the second half of 2016 when US and EU’s economic sanctions against Russia are no longer effective.
Overall, the global oil market in 2016 will become more balanced with prices more stable around US$50-55 a barrel. The low prices seen in the past year cannot continue because prices are now lower than the average production costs, about US$30-60 a barrel for traditional oil drilling method and US$60-100 for shale oil extraction. The recent shutdown of more than half of shale fields because of losses gives good grounds for this observation.
Moreover, there are many signs showing that there will soon be an improvement in strained relations and the economic sanctions between the US, Russia, EU and Ukraine. Although Iran will increase oil exports thanks to loosened sanctions, the total oil supply will hardly increase as OPEC may cut the output and more than half of the shale-oil rigs in the world have been shut down due to losses.
Vietnamese oil is assessed to have good quality with a reserves of around 4.4 billion barrels, accounting for 0.3% of the oil reserves discovered in the world, ranking second in East Asia, third in Asia and the 28th in the world. Vietnam is both a crude oil exporting country and a country importing crude oil and petroleum products.
Vietnam will likely maintain a crude oil output of approximately 340,000 barrels per day in the next several years, ranking 36th in the world in the term of exploitation scale and the fourth in Southeast Asia in the term of oil exports. Vietnam's demand for gas and oil in 2015 was estimated at 16.4 million tonnes, an increase of 6% compared to the previous year with 50% imported from abroad. In the first 11 months of 2015, Vietnam imported US$4.8 billion worth of oil and petrol, down 31.9% in terms of value compared to the same period in 2014.
The decline in imported prices of oil and gas was a positive factor helping lower retail petrol prices, stimulate domestic production and consumption, reduce input costs and curb inflation to the lowest level in the past 16 years. Domestic retail prices of oil and petrol have been reduced six times and increased four times in 2015, while oil fell 14 times and went up five times in 2014.
However, the price drops of exported crude oil caused a shortage to the budget with each US$1 decrease causing a VND1 trillion (US$44 million) loss to the budget. The export of Vietnamese crude oil in the first 11 months of 2015 fell by 0.2% in terms of volume and 48.3% in terms of value over the corresponding period in 2014. But, the Ministry of Finance affirmed that with the current oil price and the decreases in import tariffs, the government revenue would still meet the set target and is expected to surpass the target of 8%.
The fluctuations of crude oil prices always create direct and two-way impacts on the domestic socio-economic development which requires flexible and appropriate policy responses and market reactions. Vietnam should calculate different options to devise timely policy solutions to limit negative effects. It is also advisable to utilise the advantages of oil price regardless of price declines or advances to stabilise the macroeconomy and fulfil set targets on economic growth, inflation, budget, production, and imports and export.
As of December 2015, global oil prices plummeted to well below US$36 a barrel (US$37.93 for Brent oil in London and US$35.62 for WTI oil in New York), which mean that prices dropped by one third compared with May 2015 and nearly two thirds compared with the peak in June 2014. In Vietnam, the oil sector still accounts for 10% of total government revenues though this figure is shrinking. Falling prices were advantageous to importers and consumers of oil products but created mounting pressure on crude oil drilling companies and exporting countries, leading to sharp falls in oil companies’ stocks and the overload of crude oil storage facilities around the world.
The sharp fall in oil prices came as a result of bright prospects of the US economy and expectations of a stronger US dollar; increased shale oil output and larger supply from Iran after an agreement on the Middle Eastern country’s nuclear issue had been reached; OPEC’s decision not to cut their output (total output by 12 OPEC members in September was 31.72 million barrels a day, equivalent to about one third of total global output) and to keep preferential prices to maintain market share. At the same time, output by non-OPEC countries increased by 6 million barrels a day over the last six years and cheap oil was smuggled out of the Syrian territory controlled by the Islamic State, which made it even harder for oil prices to climb up.
According to the International Energy Agency, oil prices will stick around US$50 a barrel until end of this decade and will not hit US$85 until 2040 due to concerns over global warming, a rise in clean energy output and increased use of energy-saving appliances, and lower oil demand due to economic slowdown in China and many emerging countries.
In 2016 global oil consumption is estimated at 95.7 million barrels a day. Total output of non-OPEC countries is projected to fall by 500,000 barrels a day and that of the US to 12.56 million barrels a day from 12.75 million in 2015. From now until 2020, global oil demand will increase by less than 1% and around 5% in the next two decades. Global oil demand will not reach 103.5 million barrels a day until 2040 from the current level of 94.5 million barrels a day. In 2040 oil demand from advanced economies such as the US, Japan and many countries in the EU will drop by 10 million barrels a day, which is less than needed to speed up oil price recovery.
However, based on the appropriate average production costs and relevant parties’ tolerance to negative impacts from falling oil prices, it can be forecast that oil prices have bottomed out and will recover in the second half of 2016 when US and EU’s economic sanctions against Russia are no longer effective.
Overall, the global oil market in 2016 will become more balanced with prices more stable around US$50-55 a barrel. The low prices seen in the past year cannot continue because prices are now lower than the average production costs, about US$30-60 a barrel for traditional oil drilling method and US$60-100 for shale oil extraction. The recent shutdown of more than half of shale fields because of losses gives good grounds for this observation.
Moreover, there are many signs showing that there will soon be an improvement in strained relations and the economic sanctions between the US, Russia, EU and Ukraine. Although Iran will increase oil exports thanks to loosened sanctions, the total oil supply will hardly increase as OPEC may cut the output and more than half of the shale-oil rigs in the world have been shut down due to losses.
Vietnamese oil is assessed to have good quality with a reserves of around 4.4 billion barrels, accounting for 0.3% of the oil reserves discovered in the world, ranking second in East Asia, third in Asia and the 28th in the world. Vietnam is both a crude oil exporting country and a country importing crude oil and petroleum products.
Vietnam will likely maintain a crude oil output of approximately 340,000 barrels per day in the next several years, ranking 36th in the world in the term of exploitation scale and the fourth in Southeast Asia in the term of oil exports. Vietnam's demand for gas and oil in 2015 was estimated at 16.4 million tonnes, an increase of 6% compared to the previous year with 50% imported from abroad. In the first 11 months of 2015, Vietnam imported US$4.8 billion worth of oil and petrol, down 31.9% in terms of value compared to the same period in 2014.
The decline in imported prices of oil and gas was a positive factor helping lower retail petrol prices, stimulate domestic production and consumption, reduce input costs and curb inflation to the lowest level in the past 16 years. Domestic retail prices of oil and petrol have been reduced six times and increased four times in 2015, while oil fell 14 times and went up five times in 2014.
However, the price drops of exported crude oil caused a shortage to the budget with each US$1 decrease causing a VND1 trillion (US$44 million) loss to the budget. The export of Vietnamese crude oil in the first 11 months of 2015 fell by 0.2% in terms of volume and 48.3% in terms of value over the corresponding period in 2014. But, the Ministry of Finance affirmed that with the current oil price and the decreases in import tariffs, the government revenue would still meet the set target and is expected to surpass the target of 8%.
The fluctuations of crude oil prices always create direct and two-way impacts on the domestic socio-economic development which requires flexible and appropriate policy responses and market reactions. Vietnam should calculate different options to devise timely policy solutions to limit negative effects. It is also advisable to utilise the advantages of oil price regardless of price declines or advances to stabilise the macroeconomy and fulfil set targets on economic growth, inflation, budget, production, and imports and export.
Source: http://en.nhandan.org.vn/
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