World oil prices drop dramatically, people still have to buy at high prices

World prices fall sharply, domestic prices are unlikely to fall accordingly

After the domestic gasoline price increase on May 2, world oil prices plummeted from an average of 80 USD/barrel. By May 9, the price of RON 92 gasoline (base gasoline for blending E5 gasoline) had dropped to 72.6 USD/barrel. In the previous days, the price of RON 92 gasoline had also dropped quite sharply.

The decrease in world oil prices is a good sign as domestic gasoline prices have gone through three consecutive periods of strong increases with a total increase of more than 3,600 VND/liter, and electricity prices have also increased since March 20.

However, will domestic gasoline prices decrease accordingly?

Speaking to reporters, the leader of a large petroleum company expressed skepticism about the possibility of a sharp drop in domestic gasoline prices. According to him, the reason is that the Price Stabilization Fund has been heavily released recently, leading to many large companies having negative balances in the Price Stabilization Fund.

Gasoline prices are rising

Therefore, this business leader explained the reason why gasoline prices on May 17 are unlikely to drop as sharply as world prices: Currently, the price stabilization fund is 300 VND/liter. Meanwhile, E5 gasoline still has to spend more than 900 VND/liter on the fund. Thus, the price stabilization fund is still negative. Therefore, to adjust retail prices down, the Ministry of Industry and Trade - Ministry of Finance must maintain the same level of fund usage.

“If we want to reduce the use of the fund so that businesses can reduce their negative fund, the joint ministries will have to keep the price of gasoline unchanged and cannot reduce it. Or if the joint ministries use the fund and reduce the price, the reduction in gasoline prices will not be as strong as the decrease in world prices,” said the representative of this enterprise.

Recalling the long period of restraining gasoline prices in the first quarter by releasing funds to keep prices unchanged, this person said, "We have been holding back for a long time, now we can't hold back anymore so we have to release it."

This means that the negative balance of the Price Stabilization Fund will make it difficult for domestic gasoline prices to decrease correspondingly in the coming time. Because, the operator will have to consider a small price reduction to create room for the Price Stabilization Fund to be less negative, moving towards a positive Fund.

A petroleum expert commented: "Is it possible that the management and forecasting for the use of the Price Stabilization Fund in the past have been poor, and that the Fund has been abused as well as the timing and level of use in the past? Invisibly, it has made the Price Stabilization Fund ineffective, businesses have negative funds, and consumers do not benefit accordingly, even having to buy gasoline at high prices, and inflation is still affected."

15 days adjustment is too long

The fact that gasoline prices are only adjusted every 15 days according to Decree 83 is one of the reasons why domestic gasoline prices do not operate in harmony with world prices.

For that reason, on April 12, 2019, the Vietnam Petroleum Association sent a document to the Government Office stating that adjusting prices every 15 days is "unreasonable".

According to the Vietnam Petroleum Association, with this regulation, domestic retail prices will hardly be able to keep up with fluctuations in world oil prices in the context of factors affecting oil prices such as economics, geopolitics, and religion continuously evolving in a complex and unpredictable manner as at present.

Therefore, the Petroleum Association proposed to shorten the frequency of gasoline price adjustment to 10 days so that domestic retail prices gradually approach world prices, avoiding delays in price adjustment.

More deeply, this Association also expressed agreement with the option of removing the base price, not using the base price as a basis to adjust retail prices as at present, but only as a criterion for businesses to refer to before deciding on retail prices.

“Letting businesses decide on prices is not only in line with the nature of a market economy but also brings many benefits to consumers when businesses compete on price (there will be different prices between traders) and service quality to attract consumers,” the Vietnam Petroleum Association stated.