Oil price may hit 120 USD/barrel, Vietnam to face challenges

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Oil prices have increased sharply in recent days following the tension between Russia and the West over Ukraine. The high price of oil and fears of an escalation of war have hit commodity and financial markets.

Oil price may hit 120 USD/barrel, Vietnam to face challenges

Crude oil prices on the world market recorded an eighth consecutive weekly increase and are heading towards the threshold of USD 100/barrel. Over the past half year, the price of oil has increased by 1.5 times, from more than 60 USD/barrel to the current level. Compared to the middle of 2020, the oil price has risen by about five times. Oil is forecast to increase in price if supply is interrupted during the Russia-Ukraine conflict.

Oil prices have increased sharply due to the recovery of the world economy amid the Covid-19 pandemic and the difficulty of oil supply in transportation.

According to the International Energy Agency (IEA), supply problems of oil-exporting countries threaten to tighten supply. The oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and Russian and US operators is about regaining market share from US shale oil producers.

Currently, oil-exporting countries are struggling to fulfill their production commitments.

As oil prices fell to a record low in 2020, countries did not fully invest in oil production, thereby partly putting pressure on supply at the current stage. According to the IEA, 300 million barrels of oil have been taken off the market since the beginning of 2021.

According to the IEA, world oil inventories have fallen sharply and are now at their lowest level in seven years, while oil demand is growing strongly, possibly an additional several million barrels per day this year after having increased by 5.6 million barrels per day in 2021 when the world economy began recovering from the pandemic.

The situation has worsened due to Russia-Ukraine tensions. According to Bloomberg, rising oil prices could help Russia add $65 billion this year, thereby making it more resilient if it is subject to sanctions because of Ukraine.

Tensions eased slightly after Moscow said that Russia partially withdrew its troops from the border area with Ukraine. Some units of the Southern and Western military regions have completed their drills and started returning to bases. Oil prices also fell again from 95.45 USD/barrel (WTI) to 92.43 USD/barrel.

However, the conflict between Russia and the West has lasted for many years and has not been resolved. The West may find it difficult to accept Russia’s demands, which include Ukraine’s exclusion from NATO and the withdrawal of Western troops from Eastern Europe.

Since the attack and annexation of Crimea in early 2014, the Russian economy has weakened. The country’s GDP fell sharply due to Western sanctions, led by the US. For many years, Russia has had difficulties and instability in exporting goods. Russia’s economy plunged as oil prices fell in 2017.

Global story: oil prices rise, inflation escalates

Oil price may hit 120 USD/barrel, Vietnam to face challenges

Many forecasts show that oil prices will exceed 120 USD/barrel and the global economy will be affected if Russia attacks Ukraine.

In November 2021, US President Joe Biden’s administration said it would release 50 million barrels of oil from the national strategic reserve to ease pressure on consumers, but this did not create much difference.

Many analysts predict that oil prices could soon hit 100 USD a barrel, even if electric cars become more popular and the COVID-19 pandemic continues.

If Russia attacks Ukraine and the West punishes Moscow, oil prices will inevitably climb to 120 USD a barrel at some point, said David Roche, a strategist at Independent Strategy consulting firm. At that time, the European stock market as well as the global economic outlook will change.

Currently, it is difficult to predict the moves of Russia. The Kremlin has prepared a very large army, up to hundreds of thousands of soldiers, tanks, missiles and even blood supplies at the border with Ukraine.

In the current situation, many people are imagining that the strategy on the brink of war will continue to be maintained and may lead to a quick tactical attack with a clear goal from the Russian side if support from NATO and its allies with Ukraine is relatively low.

When approaching 100 USD/barrel, the price of oil will cause most countries (oil importers) in the world to be strongly affected with costs to businesses and people increasing sharply. Rising prices will drag down global growth.

According to Bloomberg, the price of oil to 100 USD per barrel this month will push inflation in the US and Europe by 0.5% in the second half of this year.

Previously, it was estimated that for every 10 USD increase in the price of oil, global growth would decrease by 0.1% the following year.

According to a forecast by Goldman Sachs, oil prices may rise to 100 USD/barrel in the third quarter and inflation will rise sharply. Emerging economies will be most affected. Meanwhile, JPMorgan Chase warned about the possibility of oil prices reaching 150 USD/barrel, and inflation rising to more than 7%, halting global growth.

In a new report, HSBC also assessed that a sharp increase in energy prices will be a blow to the recovery of the global economy.

Vietnam: economic growth challenged

In the past month, gasoline prices in Vietnam have increased three times in a row and reached a record high in the past eight years. The increase in the price of this important commodity can reduce the effect of many fiscal and monetary policies being implemented to stimulate consumption demand and growth, such as the 2% VAT reduction policy.

Currently, gasoline costs account for about 3.5% of the total production costs of the whole economy. This is a large percentage and immediately affects the cost of manufactured products.

Dr. Nguyen Bich Lam, former Director of the General Statistics Office, said that Vietnam’s economy is highly dependent on imported raw materials, with the ratio of the cost of imported materials to the total cost of raw materials being 37%.

When the world gasoline price increases, the prices of imported and domestic raw materials also rise. The increase in petrol prices has had a very strong impact on industries that use a lot of petrol such as fishing and transport of goods and passengers by road, waterway and air.

Mr. Lam said in addition to the direct impact of increasing product prices, the rise in gasoline prices also increases the price of goods in circulation, putting pressure on inflation and reducing the competitiveness of domestically produced goods, causing a negative impact on economic growth.

When gasoline prices increase by 10%, GDP decreases by about 0.5%, reflecting the strong impact of gasoline price fluctuations on economic growth. A 10% increase in petrol price causes the CPI to rise by 0.36 percentage points.

M. Ha

If petroleum prices continue escalating, Vietnam will need to cut taxes and fees, in addition to using the petroleum price stabilization fund.

Vietnam has a wide range of domestic energy sources such as crude oil, coal, natural gas and hydroelectricity, which have played an important role in economic development for decades.

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