Vietnamese refiners and oil distributors are grappling with excess oil stockpiles as domestic fuel consumption tumbled in recent months amid a resurgence in COVID-19 cases, prompting the Southeast Asian country to ramp up crude exports and slash oil product imports in the near-term trading cycles.
Vietnam is facing its worst coronavirus outbreak, forcing the government to impose lockdowns on three major cities — Hanoi, Ho Chi Minh City and Da Nang — as well as many other provinces to contain the spread of the pandemic. Accordingly, the country’s drastic decline in population mobility and a slowdown in industrial production have negatively affected oil products consumption.The decline in domestic fuel demand has been so severe that Binh Son Refining and Petrochemical, or BSR, is running out of storage to handle the build up in oil product stockpiles, industry and company sources with direct knowledge of the matter told S&P Global Platts. The state-run oil company is even considering suspending middle distillate production at its 130,000 b/d Dung Quat refinery for a few days, the sources added.
Dung Quat refinery has almost reached its maximum inventory. The refinery is currently holding around 1.5 million barrels of oil products and 2.5 million barrels of crude oil.
Making matters worse, Vietnam’s major oil distributor Petrolimex slashed its monthly term oil products intake from Dung Quat and Nghi Son, the country’s two major refineries.
Many other trading companies and fuel distributors are also struggling due to the lack of storage to handle unsold barrels, forcing them to sharply reduce, or suspend, receiving supplies from the two refiners. In August, the trading and distribution companies are only expected to take 50%-60% of their monthly term supply volumes from Dung Quat.
SelloffTypically, Dung Quat refinery has priority over Vietnam’s domestic crude production, but state-run upstream company PetroVietnam is poised to focus on exports for the next few months to ease the high stockpiles.
Vietnam exported 303,061 mt, or 71,659 b/d, of crude oil in July, up 14.5% year on year and 32.4% higher from June, latest Vietnam Customs data showed.
Vietnam aims to raise crude exports to 90,000 b/d over the next few months, according to trading sources at PetroVietnam.
PetroVietnam’s trading arm, PV Oil, recently sold off numerous sweet crude cargoes for loading in early fourth quarter, including 300,000 barrels of Su Tu Den crude for loading over Oct. 1-7 and a cargo of Chim Sao crude for loading in Oct. 12-16. The company is currently offering Ruby crude for loading over Oct. 21-28.
Apart from crude oil, Vietnam is also actively selling its unwanted fuels in the regional market and the country is offloading most of the excess middle distillates to other Southeast Asian countries with ample storage facilities, including Singapore and Malaysia, gasoline traders based in Singapore with close knowledge of the trade flows said.
Among recent spot market activity was Nghi Son refinery offering 30,000 mt of 350 ppm sulfur diesel for loading over Aug. 22-31. The 200,000 b/d capacity refiner was also offering 30,000 mt of 95 RON gasoline for loading over Aug. 22-31 in a tender that closed Aug. 16.
Call for state interventionOn Aug. 12, the provincial government of Quang Ngai, where Dung Quat refinery is located, had sent a letter to Prime Minister Pham Minh Chinh to help address the high stockpile at the refinery.
Deputy Minister of Industry and Trade, Do Thang Hai, recently held a meeting with major oil companies, including PetroVietnam, Petrolimex, PV Oil, BSR and Nghi Son refinery’s distribution branch, to discuss ways to resolve surplus oil products during the pandemic, according to a statement posted on the website of the Ministry of Industry and Trade.
In an effort to help address domestic refiners’ issues, Quang Ngai officials recommended that the prime minister enforce strict rules to make distributors and traders prioritize domestic oil products and reduce imports.
PetroVietnam also recommended the government to introduce measures to reduce oil product imports and encourage local traders to prioritize supplies from Dung Quat.
Vietnam imported 584,455 mt of oil products in July, a decline of 47% year on year, Vietnam Customs data showed. The shipments should ideally drop to below 350,000 mt/month to maintain the supply-demand balance in the current market condition, industry, refinery and trading sources said.
However, Hanoi is unlikely to impose any drastic measures to restrict fuel imports as such actions would be a serious breach of the free trade agreement between Vietnam and South Korea, according to gasoline marketers at two South Korean refiners. South Korea is Vietnam’s top middle distillate supplier.
