Oil prices — VietEcon

OIL PRICES IN USD. SOURCE: MARKETS INSIDER

I probably should have written about this yesterday, but I didn’t. Anyway, oil prices are way up (15% yesterday, although down 1.5% today) after the attack on Saudi Arabia’s oil infrastructure. And if the US decides that it needs to attack Iran, then we could see more spikes.

But looking closer, I am not sure that we need to be so worried. First, oil prices are not that high. Brent was above $70 per barrel at one point yesterday, but well below where they were in August 2018 (close to $90).The world didn’t explode then.

We are seeing slowing GDP growth plus increased investment in renewables and public transport globally, so I am not sure that we are going to see tons of pressure on oil prices long term. That means this might be a big spike for a few months but likely well below the highs we saw back in the early teens. Remember from February 2011 to September 2014, oil prices were consistently above $100 per barrel. Of course, predicting oil prices is a mug’s game, but, what the hell, I don’t think we are going to see that $100 price again.

Second. Vietnam just doesn’t import that much oil. According to the CIA (!), it imported just 23,700 barrels a day, or 8.7m a year, which would cost the country $606m. If the oil price went up to $80 per barrel, then that would be $692m. Vietnam is a net importer of fuel, and the trend is negative (one reason why I believe the country should invest in renewables), but it is still relatively small. Net fuel imports were about $4bn in 2017, which pails in comparison to the almost $14bn in net electronics imports (most of which likely went into goods that they they exported). The country has a big current account surplus, so they are fine if oil (which is well below 10% of merchandise imports) rises a little.

So ultimately, Vietnam should be able to weather this much better than other countries. For example, Japan imports 3.2m barrels a day, so a $10 increase in oil prices raises its yearly import bill by $11.6bn. In ASEAN, Indonesia is the largest importer at 907,900 bbd, so that same $10 increase costs it $3.3bn a year. That’s low compared to its GDP, but still a lot of money. Thailand would face a similar bill, but on a GDP that is about half of Indonesia, so it’s even worse for them.

Basically, Vietnam is in better shape than its ASEAN neighbors in regard to energy.