Global hike pushes Vietnam fuel price to 7-year high

The government has hiked fuel prices up by 40.23–52.59 percent this year with the latest increase Tuesday bringing the popular fuel RON 95 to VND24,330 ($1.07) per liter, highest since September 2014.

Global prices have also been rising. Brent futures rose 0.5 percent, to settle at $86.40 a barrel Tuesday, while U.S. West Texas Intermediate (WTI) crude ended 1.1 percent higher at $84.65.

Those were the highest closing prices for both global benchmarks since October 2014.

A global supply shortage and strong demand in the U.S., the world's biggest consumer, is said to be the reason behind the increase.

Gasoline and distillate consumption in the U.S. is back in line with five-year averages after more than a year of depressed demand.

While China's red-hot power and coal markets have cooled somewhat after government intervention, energy prices remain elevated worldwide as temperatures fall with the onset of the northern winter, Reuters reported.

Since last month, Vietnam has pushed up fuel prices four times, but the combined increase this year is still lower than that of global rates thanks to the fuel price stabilization fund, the Ministry of Industry and Trade and the Ministry of Finance said in a joint statement Tuesday.

They noted that global rates have increased 59.08–76.03 percent this year.

However, the price stabilization fund, set up to offset fluctuations in global fuel prices, is seeing shortages.

As of Tuesday, state-owned fuel distributor Petrolimex had a negative VND262 billion balance in its stabilization fund. At state-owned PVOil, the negative balance was VND697 billion as of Oct. 11.

By the end of August, 15 of 35 fuel companies in the country reported a combined negative balance of VND1.47 trillion.

Together with the remaining sum from the other 20 companies, the total balance of the fund stands at VND600 billion now.

Experts have said further price hikes in the future can deplete the balance. The fund’s balance had fallen to a negative VND620 billion in mid-2019.

The high fuel prices have raised concerns of rising inflation.

Ngo Bich Lam, former head of the General Statistics Office, said that a 10 percent increase in fuel prices will lower GDP by around 0.5 percent and pump up the Consumer Price Index (CPI), which measures inflation, by 0.36 percentage points.

This shows the strong impact of fuel price fluctuations on the economy, he said.

Some people have mentioned the possibility of lowering fuel tax to offset the increase. Tax and fees account for over 60 percent of fuel prices.

At VND4,000 per liter, or 16.4 percent of the current price, environmental tax is one of the biggest boosters of fuel prices.

The Ministry of Industry and Trade and the Ministry of Finance are considering lowering fuel taxes, including environmental tax, to keep domestic prices stabile, Le Viet Nga, deputy head of the domestic markets under the trade ministry, had said at a press briefing last month.

A fuel distributor in Hanoi who did not want to be named said that the government could lower taxes for biofuel E5 RON 92 by VND1,000 per liter from the current VND3,800.

This 26 percent discount will reduce impacts of the price hike on businesses and citizens at a time the economy is only beginning to recover, he said, adding that it would also boost consumption of the biofuel, which is cheaper than RON 95.

Vietnam imported $2.93 billion worth of fuel in the first nine months, up 15.3 percent year-on-year, according to Vietnam Customs.