ANZ: Vietnam oil consumption growth fastest in region
Vietnam’s oil consumption growth is the fastest in the region, overtaking China and rising by 7.5% annually over the last 20 years, according to ANZ Bank.
The bank said in a report released on Tuesday that this dynamic has contributed to switching Vietnam to a net oil consumer since 2010 from a net oil producer.
“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 the demands of manufacturing growth,” it said.
The price of Brent crude oil has dived since July last year. After the Organization of Petroleum Exporting Countries’ (OPEC) decision to maintain production levels amidst an oversupplied market, the outlook for oil prices remains soft.
Regarding impacts of the falling oil price on Vietnam, ANZ said the first obvious effect of the decline in oil prices is a further softening of headline inflation.
Last year, consumer price gains averaged 4.1% year-on-year, undershooting early expectations by a wide margin. The persistent decline in fuel prices in the second semester exacerbated the already-soft price gains in non-food/non-oil items in the consumer price index (CPI) basket due to sluggish domestic demand.
However, ANZ said the oil price will have marginal effect on budget deficit.
Although the budget deficit continued to improve, the transfer pricing policy of various commodities in Vietnam costs the State at least VND103 trillion in 2013, or 2.9% of gross domestic product (GDP). Nevertheless, the cost of social subsidies has declined from a peak of 4.7% of GDP in 2008.
“Over the past four years it has been broadly unchanged at 2.96% of GDP. Due to the lack of complete breakdown of the State’s subsidy bill, we assume that the marginal change in social subsidies in 2014 was due to the decline in oil prices. As of September 2014, we estimate that expenditure on social subsidies had slightly declined as a portion of GDP to 2.8%.”
Although the subsidy bill has marginally declined, ANZ projected that total tax revenues from crude oil exports have also decreased.
Crude oil is a significant source of government revenues as the State collects various taxes including royalty tax, crude oil export tax and windfall tax. High risk priority projects which require heavy capital investment are usually taxed at higher rates than conventional projects.
Besides, ANZ said the trade balance should not be at risk from low oil prices.
Last year, Vietnam exported 9.2 million metric tons of crude oil while importing 8.4 million metric tons of petroleum products. With the largely un-hedged oil trading in Vietnam, this has yielded a narrow surplus of US$95.7 million in oil-related external trade.