New petroleum trading idea will meet multiple objectives, say experts

In a recent official dispatch, the Government outlined that the formation of the national petroleum trading floor will bring benefits to Vietnam. When the petroleum trading floor operates, information on prices and transaction volumes will be publicly disclosed, thereby minimising the possibility of price manipulation, creating a flexible and quick pricing mechanism, and overall improving distribution, it said.

Welcoming this move, Hoang Trung Dung, general director of Additives and Petroleum Products Development Joint Stock Company (APP), stressed that the formation of such a trading floor like the existing coffee trading floor will contribute to helping distributors access sources of products.

He told Kinh Te Do Thi (Economics and Urban) newspaper that the MoIT is currently drafting a new Government decree proposing that distributors not be permitted to purchase products from each other and to get products directly from two domestic oil refineries. These regulations are likely to interfere and further limit the freedom of distributors, said the executive.

Meanwhile, Trinh Quang Khanh, vice chairman and general secretary of the Vietnam Petroleum Association, pointed out that the State management agency is intervening too deeply in the process of determining petroleum prices, instead of creating a mechanism for the petroleum industry to further develop in the face of fluctuations in the world economy.

In his analysis, the price is currently calculated in relation to the average price reported by businesses, but in reality each firm has different cost reporting data, therefore calculating the average price of petroleum does not properly reflect the true costs faced by enterprises. Meanwhile, costs continuously fluctuate, and if not carefully calculated, this issue can lead to increased difficulties for businesses.

“I support the establishment of a petroleum trading floor that enables businesses to buy petrol and oil through the Mercantile Exchange of Vietnam (MXV) to insure prices and ensure supply sources,” Khanh told the newspaper.

Commenting on the new draft decree on petroleum trading, the Vietnam Petroleum Association proposed introducing regulations which allow businesses to purchase petrol and oil through the exchange to proactively respond to fluctuations taking place in world oil prices and to ensure a stable supply.

At present, petroleum trading is required to meet various objectives, including ensuring energy security, stabilising the macroeconomy, controlling the consumer price index, and protecting the environment. Meanwhile, experts stated that ensuring energy security and harmonising the interests of three parties, namely the State, businesses, and consumers is enough.

Many enterprises therefore proposed that domestic petroleum prices should be regulated according to the market law of supply and demand, with the petroleum trading floor being one of the necessary tools.

Indeed, Vietnam produces 70% of the total of 27 million tonnes of petrol and oil it consumes annually. This means that it meets conditions to form a trading floor and to use that floor price in calculating the market price, instead of using Singapore prices as it has been done so far.

Dr. Vu Vinh Phu, who has repeatedly proposed developing a petroleum trading floor, said that bringing petrol and oil to the trading floor will help to create a healthy market, thereby allowing it to operate according to market principles.

There will be no more ask-give mechanism, no more discounts, no ceiling price norms, and no base price, said the expert, adding that petroleum trading through the exchange helps the State to prevent tax loss, control prices, and regulate the market. According to him, consumers will benefit the most, and they will turn a blind eye to firms that do not offer competitive prices and quality services.

Petroleum trading through the exchange will help make the products get closer to the true market principles, although the State management agency should strictly control quality and supply, he suggested.