NDO - The global oil market in 2016 will continue to be dominated by oversupply, but prices will recover slightly and become more stable. Vietnam’s Ministry of Finance affirms that with the current oil prices, government revenues will still be able to meet the set target.
Oversupply and steep price falls
Last year saw a sharp decline in global oil prices, with prices in early December falling by one third compared with May and less than half the level a year earlier. This came as a result of the US economy’s bright outlook, increased shale output and expectations of Iran’s return to the market. Lacklustre demand and OPEC’s decision not to cut output also contributed to the price fall.
In 2015 Saudi Arabia overtook Russia as the world’s largest oil producer with an average of 10.19 million barrels a day. The Middle Eastern country also offered cheap prices to increase its market share. In the first nine months of 2015, global crude output rose 1.8% although prices had declined by 15% compared with the start of the year and 60% since the peak in June 2014.
According to the Financial Times, due to overload at land storage facilities, more than 100 million barrels were being held on ships at sea, double the levels of 2015 and equivalent to more than a day’s worth of global oil consumption. The oil glut was so severe that traders were asking ships to go slow to help them manage storage levels.
The International Energy Agency (IEA) says that global warming is placing pressure on oil as more and more clean energy and energy-saving appliances are produced, while slowing growth in China and many emerging economies has led to declining demand. Meanwhile OPEC’s key members insist on maintaining or even increasing their output. The IEA projects that global oil demand will increase by less than 1% until 2020 and only 5% over the next two decades.
In 2040 oil demand of advanced economies such as the US, Japan and many EU members will fall by 10 million barrels a day, a demand too week to help oil prices recover. The IEA says prices will hover around US$50 a barrel until the end of this decade and will unlikely even reach US$85 in 2040. But from a different point of view, Qatar’s Minister of Energy and Industry says oil prices have bottomed out and could recover in 2016.
Overall, the glut will continue to dominate the global oil market in 2016 but prices will rebound slightly and become more stable. The low prices seen in the past year cannot continue because prices are now lower than the average production costs, about US$30-70 a barrel for traditional oil drilling methods and US$60-100 for shale oil extraction. The recent shutdown of more than half the shale fields because of losses gives good grounds to 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.
Two-way impacts on Vietnam’s economy
According to the Ministry of Industry and Trade, domestic oil demand in 2015 rose by 6% from a year ago. Last year domestic prices also went up and down with fluctuations in global prices.
Vietnam has an oil reserve of around 4.4 million 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. The country will likely maintain a crude oil output of approximately 340,000 barrels a day in the next several years. Although the proportion of oil revenues is declining, they are still contributing around 10% of Vietnam’s annual government income.
With two thirds of demand for refined oil products coming from imports, lower prices help Vietnam’s enterprises cut input costs and consumers reduce spending on fuel while easing pressure on cost-push and imported inflation, and stimulating economic growth. In the first 11 months of 2015, Vietnam’s oil imports were worth US$4.8 billion, down 31.9% from a year earlier, but the imported amount was still larger than the previous year.
As a crude oil exporter, a US$1 drop in prices means a loss of VND1 trillion (US$44 million) to government revenues. In 2015, Vietnam’s oil output rose 7% but exports dropped 0.2% in terms of volume and 48.3% in value over the corresponding period in 2014, earning around VND66 trillion (US$2.9 billion), 3% short of estimates. But the Ministry of Finance is confident that the government revenue will still be able to meet the set target and could exceed the target by 8% with current prices.
Even in the worst case scenario, if prices dropped to below US$40, pressure on the State budget would still not be considerable because, as mentioned above, lower prices will boost economic growth, which in turn will help increase revenues to offset losses from decreased oil export revenues.
nhandan.org.vn
Oversupply and steep price falls
Last year saw a sharp decline in global oil prices, with prices in early December falling by one third compared with May and less than half the level a year earlier. This came as a result of the US economy’s bright outlook, increased shale output and expectations of Iran’s return to the market. Lacklustre demand and OPEC’s decision not to cut output also contributed to the price fall.
In 2015 Saudi Arabia overtook Russia as the world’s largest oil producer with an average of 10.19 million barrels a day. The Middle Eastern country also offered cheap prices to increase its market share. In the first nine months of 2015, global crude output rose 1.8% although prices had declined by 15% compared with the start of the year and 60% since the peak in June 2014.
According to the Financial Times, due to overload at land storage facilities, more than 100 million barrels were being held on ships at sea, double the levels of 2015 and equivalent to more than a day’s worth of global oil consumption. The oil glut was so severe that traders were asking ships to go slow to help them manage storage levels.
The International Energy Agency (IEA) says that global warming is placing pressure on oil as more and more clean energy and energy-saving appliances are produced, while slowing growth in China and many emerging economies has led to declining demand. Meanwhile OPEC’s key members insist on maintaining or even increasing their output. The IEA projects that global oil demand will increase by less than 1% until 2020 and only 5% over the next two decades.
Overall, the glut will continue to dominate the global oil market in 2016 but prices will rebound slightly and become more stable. The low prices seen in the past year cannot continue because prices are now lower than the average production costs, about US$30-70 a barrel for traditional oil drilling methods and US$60-100 for shale oil extraction. The recent shutdown of more than half the shale fields because of losses gives good grounds to 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.
Two-way impacts on Vietnam’s economy
According to the Ministry of Industry and Trade, domestic oil demand in 2015 rose by 6% from a year ago. Last year domestic prices also went up and down with fluctuations in global prices.
Vietnam has an oil reserve of around 4.4 million 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. The country will likely maintain a crude oil output of approximately 340,000 barrels a day in the next several years. Although the proportion of oil revenues is declining, they are still contributing around 10% of Vietnam’s annual government income.
With two thirds of demand for refined oil products coming from imports, lower prices help Vietnam’s enterprises cut input costs and consumers reduce spending on fuel while easing pressure on cost-push and imported inflation, and stimulating economic growth. In the first 11 months of 2015, Vietnam’s oil imports were worth US$4.8 billion, down 31.9% from a year earlier, but the imported amount was still larger than the previous year.
As a crude oil exporter, a US$1 drop in prices means a loss of VND1 trillion (US$44 million) to government revenues. In 2015, Vietnam’s oil output rose 7% but exports dropped 0.2% in terms of volume and 48.3% in value over the corresponding period in 2014, earning around VND66 trillion (US$2.9 billion), 3% short of estimates. But the Ministry of Finance is confident that the government revenue will still be able to meet the set target and could exceed the target by 8% with current prices.
Even in the worst case scenario, if prices dropped to below US$40, pressure on the State budget would still not be considerable because, as mentioned above, lower prices will boost economic growth, which in turn will help increase revenues to offset losses from decreased oil export revenues.
nhandan.org.vn
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