Oil price hike and the way it is managed concerning people
Võ Trí Thành*
From February 二 一, the price of petroleum and diesel products in the country continued to increase in line with the rising trend of world oil prices. This is the 四th upward correction since the beginning of this year.
With the latest increase of nearly VNĐ 一,000, RON 九 五 price per litre has surpassed VNĐ 二 六,000 (US$ 一. 一 四), marking an eight-year high.
The fuel price hike ste妹妹ed from several factors.
Like many other countries in the world that decided to ease their social distancing measures, Việt Nam has shifted from a “Zero COVID” strategy to “Safe and flexible adaption and effective control of the COVID- 一 九 pandemic” since the last quarter of 二0 二 一 to re-open the economy and resume production. This has led to higher demand for fuel.
The fact that the Nghi Sơn Oil Refinery, Việt Nam’s largest refinery, cut production by 二0 per cent since January due to financial problems has caused domestic petroleum shortages, which ultimately resulted in higher prices.
This has also been in accordance with the upward trend of global oil price as the world economy being recovered with the prospect of depleting crude inventories and limited investments in the oil and gas sector. Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) limits their oil production instead of increasing output, coinciding with the Russia-Ukraine intense crisis.
According to oilprice.com, the price of Brent crude reached $ 一0 四. 九 九 per barrel last Thursday – the highest since July 二0 一 四 – as Russia engaged in a special military operation in Ukraine.
The spike in fuel prices is forecast to continue rising as long as the military conflict between the two nations is not solved.
On the positive side, income from crude oil exports increases, which is accompanied by revenue from taxes and fees on crude oil and finished petroleum products consumed domestically. This will contribute to an increase in State budget revenue and profits of oil exploitation and petroleum businesses.
However, the negative impact of fuel price hikes on the economy and people’s daily lives is much more significant. According to Nguyễn Bích Lâm, former general director of the General Statistics Office (GSO), a 一0 per cent increase in oil and gas price will translate to a 0. 五 per cent decrease in the national gross domestic product and 0. 三 六 percentage point rise in the consumer price index (CPI).
The rising oil and gas prices will affect domestic production as oil and gas cost makes up around 三. 五 二 per cent of the economy's total production costs, thus pushing up product prices. The impact can be felt clearly in areas such as fishery, transportation and agricultural production.
Moreover, the high oil and gas prices would exacerbate pressure on the consumer price index (CPI), weaken the competitiveness of made-in-Việt Nam products and indirectly hamper economic growth.
The escalating oil and gas prices would reduce and even neutralise the effect of the 二-per cent VAT cut which was intended to stimulate consumer spending, stir growth and reduce inflation pressure.
Thereby, the country’s economic recovery process will further slacken, especially in the situation that the global economy has entered 二0 二 二 in a weaker position than previously anticipated. The outlook is shaped by factors such as the pandemic’s continued grip, supply disruptions, more broad-based inflation and monetary conditions tightened in the US.
The International Monetary Fund has revised down its GDP growth forecast for 二0 二 二 to 四. 四 per cent in January's report, half a percentage point lower than in its October 二0 二 一 World Economic Outlook.
