Vietnam's gasoline, gasoil oversupply woes to persist even as government eases movement controls

Singapore — Vietnam's successful control of the spread of the coronavirus within the country has spurred its government to gradually ease domestic travel restrictions, but the country's refiners are not out of the woods yet, with the pick up in driving activity expected to be slow, while inventories and run rates remain high.

On Wednesday, Vietnam, for the fifth consecutive day, reported no new coronavirus cases, one of the first Southeast Asian countries to have reigned in COVID-19, according to media reports.

Social distancing measures have been gradually eased in some provinces with essential businesses allowed to resume operations from April 16 onwards, while the ban on nonessential services and gatherings of more than 20 people remained in place until April 22.

The lockdown at major business centers such as Hanoi, Ho Chi Minh and Da Nang have also eased from April 22 onwards.

DEMAND TO RECOVER BUT SLOWLY

But even with economic activity gradually returning, Vietnamese refiners will remain under pressure as the biggest challenge is the pace at which demand will return, industry sources said.

"Most driving activity is going to take some time to return. I doubt that overall driving will return overnight," one Singapore-based source said.

COVID-19 has caused domestic oil demand in Q1 to drop by an estimated 30% year on year, Platts reported previously.

Agreeing, another source pointed to China, where economic activity had resumed since mid-March, but has yet to return to normal with H1 April car sales still showing a 12% year on year decline, albeit an improvement from the 41% year on year decline in March and 82% slump in February.

S&P Global Platts Analytics "projects a relatively mild decline in Vietnamese demand for Q2 due to the effectiveness of the measures and relatively short duration of the lockdown. This as compared to countries like Malaysia, India, the Philippines."

Vietnam, a net importer of refined oil products, imports around 20%-30% of its oil product needs, with domestic refineries --148,000 b/d Dung Quat refinery and 200,000 b/d Nghi Son refinery -- meeting the rest.

Reflecting the slow pickup in demand, Vietnam's total oil product imports is expected at around 1.3 million to 1.6 million mt in Q2, representing a quarter-on-quarter decline of around 18%-29%, according to refinery officials and traders in Vietnam, as well as South Korean oil product marketers surveyed by Platts.

In Q1, Vietnam imported 1.84 million mt of oil products and South Korea was its largest supplier, according to latest preliminary data released by the Vietnam Customs.

HIGH STOCKS AND HIGH RUNS

Against this backdrop, Vietnamese refiners face the immediate challenge of rising inventories, made worse as refinery run rates remain high.

State-owed PetroVietnam in mid-April proposed to the government to curb oil imports, as "stockpile of gasoline [at the refineries] rose to more than 90% of storage capacity."

In view of rising stocks and falling demand, refiners would typically cut operating rates to tide them over the period. Indian refiners such as Indian Oil Corp and Bharat Petroleum Corp. Ltd, have reduced run rates by around 50%-60% throughout their refineries.

Vietnamese refiners, however, are unable to reduce rates to below 100% as they are not economically viable. At the moment, Dung Quat refinery is running at around 103% of capacity, while Nghi Son has maintained its refinery output at over 100%, Platts reported previously.

Tightened entry restrictions into Vietnam has also made shutting these plants difficult, as Vietnam's refineries require foreign experts to carry out maintenance, market sources said.

Dung Quat refinery intended to hire 278 experts from countries such as South Korea, Malaysia, Thailand, India and the Philippines for a planned maintenance scheduled to start June 12, but the turnaround has since been pushed back to August 12 as these experts are not able to enter the country at that time, according to a company statement released on Tuesday.

As such, Vietnam's output of refined oil products such as gasoline and gasoil will remain high, putting further pressure on the country's refineries.

"One solution is to export. But with the Asian market so bad now, they would have to export at a loss," another Singapore-based trader said.