Gasoline prices heading for historic high

What is the highest price of gasoline in history?

From 8:00 p.m. on June 23, 2014, petroleum companies have listed the selling price of RON 95 gasoline at VND25,730 per liter (zone one). For areas far from the center and seaports (zone two), RON 95 gasoline is priced at VND26,240 per liter.

This is considered the highest price in the history of RON 95. This record has not been broken yet.

However, recently, gasoline prices have been continuously increasing sharply, especially RON 95 gasoline prices, which are approaching the highest price in history set in June 2014.

RON 95 gasoline price is heading towards a historic high. Photo: Luong Bang

Specifically, on May 2, 2019, the price of RON 95-III gasoline was listed by the enterprise at VND 22,190/liter.

Thus, this price is lower than the record set in June 2014 of only 3,540 VND/liter.

With 3 recent consecutive price increases, the total price of RON 95 gasoline has increased by 3,642 VND/liter.

It should be noted that, in the price increase on May 2, the Ministry of Industry and Trade also affirmed: "Currently, the retail price of domestic gasoline products is still being maintained at a level much lower than the base price." This means that the current retail price is still being compensated by the Price Stabilization Fund. Specifically, RON 95 is being compensated 283 VND/liter.

Series of businesses with heavy negative price stabilization fund

Since the beginning of the year, the Ministry of Industry and Trade and the Ministry of Finance have continuously spent heavily on the Price Stabilization Fund to control the increase in domestic gasoline prices. Even when the Fund is negative in many businesses, the fund disbursement continues.

Before 4:00 p.m. on May 2, 2019, the Petroleum Price Stabilization Fund established at Petrolimex was negative 355 billion VND. This is an estimated number and has been rounded.

Another oil giant, PVOil, also lost nearly 500 billion VND.

The fund is heavily negative while the Price Stabilization Fund is still being released, forcing many businesses to temporarily use their own money/or borrow from banks to make up for it. Another way is to promote the sale of RON 95 gasoline and limit the sale of E5 because E5 gasoline has a much larger release from the Price Stabilization Fund.

Saigon Petro, in its petition to the Ministry of Industry and Trade, also acknowledged: For key enterprises, enterprises that consume E5 gasoline heavily, the Price Stabilization Fund of that key enterprise will decrease significantly (not excluding the possibility of going negative) while for key enterprises that do not have E5 gasoline, the Price Stabilization Fund is still guaranteed.

"This will not encourage key enterprises to trade in E5 gasoline," Saigon Petro commented.

At the recent Petrolimex General Meeting of Shareholders, Mr. Bui Ngoc Bao, former Chairman of Petrolimex, currently Vice Chairman of the Petroleum Association, said: The Petroleum Price Stabilization Fund is being overspent. This is a new feature in recent years, never before seen.

According to the Vice President of the Vietnam Petroleum Association, when the petroleum stabilization fund at enterprises is negative, petroleum businesses will have to borrow from banks to compensate.

There are 2 oil refineries but gasoline prices are still based on world prices for calculation.

It is estimated that with the current negative balance of the Stabilization Fund at 380-400 billion VND, if the operator continues to decide to release the Stabilization Fund, it will cause a deficit in this fund. "This is an extremely big risk for businesses. Businesses borrow from banks to compensate, but if there is no repayment, the bank can stop lending," he said and suggested that businesses, including Petrolimex, need to promptly make recommendations to the State management agency on petroleum.

"We use the Price Stabilization Fund, but we must ensure that businesses can maintain their operations. The policy of using and setting aside the Price Stabilization Fund for petroleum also needs to be reconsidered," said Mr. Bui Ngoc Bao.

What is the scenario for upcoming gas prices?

Currently, although the two oil refineries Dung Quat and Nghi Son have met 80% of domestic gasoline consumption, the selling price of this item is still based on world prices to calculate the increase/decrease. Therefore, domestic gasoline prices depend heavily on the developments of world gasoline prices.

However, domestic gasoline prices may fall into a state of increasing and decreasing out of sync with world prices. This has been demonstrated during the first 4 months of this year. World prices have increased continuously, environmental protection tax has increased dramatically, but domestic gasoline prices have been "compressed" by releasing the Price Stabilization Fund.

Now, the Price Stabilization Fund at major enterprises has gone negative, so if the world oil price continues to increase, the domestic oil price will also increase significantly. Because the room to use the Fund is almost exhausted. At that time, the "historic price zone" of RON 95 will soon be broken.

In case the world oil price drops sharply, the domestic oil price is unlikely to drop sharply as well. Because the operator will have to consider setting aside the Price Stabilization Fund for use when needed. This was applied when the oil price dropped sharply in the last months of 2018, the domestic oil price did not decrease accordingly./.