Oil prices and Subsidies

1. Why has the price of fuel on the international market increased recently?

• Since mid-2004, the price of crude oil has increased substantially on the world market. For example, the West Texas Intermediate (a reference price used in the United States and globally) increased from US$19 per barrel in 1993 to US$31 in 2003. In October 2004, it reached US$51 and in 2005 it went up to US$67 per barrel. (73 dollars on Monday 5/6/2006)
  

• The main causes for these increases are:

- The existence of a tight market due to the small margin between production (83.0 million barrels per day(bpd)) and demand (82.5 million bpd);
- High demand for oil by China, India and the United States;
- Uncertainly of supply in some OPEC (Organization of Petroleum Exporting Countries) countries;
- Adverse weather conditions such as Hurricane Emily in Mexico, affecting oil production and
- Speculation on oil prices.
2. Our country produces oil. So why should we increase fuel prices?

• The price of oil and petroleum products are determined by the international market based on supply and demand. These are factors beyond our control. OPEC also plays an important role in setting oil production levels which in turn, affect the market price. Although Malaysia produces and exports oil, we are not a member of OPEC, nor are we a major oil producing country. As such we have no influence on how the price of oil is determined in the international market.

• If there is a large increase in oil prices on the world market, it affects the price of petroleum products such as diesel, petrol and cooking gas (LPG) in our country.

Petrolimex refuses cheap petrol because of high deposit

The Ministry of Trade (MoT) has sent a report to the Prime Minister, explaining why Petrolimex and Vinapco have refused to import cheaper petrol from an Australian supplier.
The case was brought to the spotlight after Pham Ngoc Ha, Director of the Hai Van Consultant and Trading Company, who was acting as a representative for Australian Crucible Minerals (ACM) and broker in the unsuccessful petrol supply bid, took details of the failed deal to the press.
ACM has been offering sales on behalf of Project Equity Nominees (PEN), which has been authorised by Project Equity Service Group (PESG) to sell products.
According to Mr Ha, if Petrolimex had begun purchasing petrol from the Australian company, it would have bought petrol at lower prices of around VND7,940/litre.
MoT found that ACM was established just over one year ago, on November 12, 2004. Meanwhile, according to Citibank Vietnam, PEN is not a client of Citibank Australia, and information available about the company is limited.
ACM, through the broker, offered a long term petrol supply deal, in which it will provide more than 200,000 tonnes for each kind of products to the key petrol importers, Petrolimex and Vinapco.
However, the payment terms requested by ACM prove ‘inappropriate’ to the merchandising traditions in Asia, which have long been applied by Vietnamese importers. Suppliers must show products to importers and discuss delivery time and place for every consignment of goods.
However, Petrolimex and Vinapco agreed to negotiate with ACM to purchase 25,000 tonnes of diesel worth $15mil, and 10-15,000 tonnes of Jet A1 worth $7-11mil respectively. However, ACM dismissed the deals stating “PESG is a wholesaler, not a retail group”. A Petrolimex official said that PESG will only sell if the clients order more than 200,000 tonnes for each deal.
ACM has requested that the buyer present a letter of guarantee granted by a bank, which guarantees deferred payment within 13 and a half months. However, petrol importers cannot pay security at banks to get the letter of payment guarantee.
“The deposit may reach several hundred million dollars, which is beyond our capability,” a Petrolimex official said.
MoT has also pointed out that a selling price of less than VND8,000/litre as Mr Ha suggests is unrealistic. The selling price would be higher after adding taxes and other expenses.
Minister of Trade Truong Dinh Tuyen told the press on June 5 that the Government has accepted the MoT explanation.

Source: VietnamNet