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Singapore — Southeast Asian sweet crude market may witness spot cargo volumes decline sharply over the coming trading cycles as Vietnam plans to slash production and exports with state-run PetroVietnam finding crude sales unprofitable amid plunging oil prices.

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Vietnam is one of the major regional crude suppliers as it regularly offers various light, medium and heavy sweet grades including Chim Sao, Thang Long, Dai Hung and Bach Ho in the Southeast Asian spot market. The country exported 79,845 b/d of crude in 2019, up 0.4% from 2018 exports, according to Vietnam customs data.

However, the number of Vietnamese sweet crude cargoes available in the market looks set to decline as PetroVietnam recently told S&P Global Platts that it aims to produce 10.62 million mt of crude oil in 2020, down 18.9% from 13.09 million mt in 2019.

PetroVietnam said it may further cut its crude oil production target as oil prices are too low and exports are no longer profitable.

Vietnam's crude oil sales and export earnings are estimated to fall by $225,000/day for every $1/b decline in outright crude prices. If prices are quoted at around $30-$35/b, PetroVietnam is likely to lose $3 billion in sales value this year, the company said in a statement last week.

Platts assessed Vietnam's Bach Ho crude at an outright price of $32.04/b on Monday, marking the lowest level since $31.78/b on January 21, 2016.

Bach Ho was assessed at an average outright price of $42.45/b to date in March, falling more than $25/b from $68.34/b average in 2019, Platts data showed.

The flagship export grade suffered a double blow as its spot differential also tumbled in recent trading cycles. Platts assessed Bach Ho at a premium of $4.15/b to Dated Brent Wednesday, marking the lowest physical market price differential since $4.1/b on July 8, 2019.

Apart from the financial reasons, PetroVietnam's oil and gas exploration and production projects have been impacted by the coronavirus outbreak as many contractors are unable to send workers to the operation fields as planned.

Deliveries of equipment to the projects from countries impacted by the pandemic have also been delayed, PetroVietnam told S&P Global Platts.

Stockpiling opportunity

It wasn't all gloom and doom for PetroVietnam, as the company was also looking at the bright side of the ultra-low oil price environment.

Low crude prices open new opportunities for PetroVietnam to build crude oil stockpiles and reserves through purchasing crude at low prices, its general director Le Manh Hung said.

Even big exporters like the US is planning to increase imports of crude oil at low prices for storage. A small producer like Vietnam would also need to seriously reshuffle production, exports and import strategies, the company said in a statement.

Building SPR to ensure energy security is becoming more relevant to Vietnam as its crude import requirements continued to rise, according to JY Lim, oil markets adviser at S&P Global Platts Analytics.

In 2019, the country imported 7.62 million mt of crude oil, soaring 47.1% from the previous year. Of that, Vietnam imported 7.14 million mt from Kuwait last year, jumping 53.7% from 2018. The country imported 342,795 mt of crude oil from Brunei in 2019, flat from a year earlier.

The higher year-on-year imports came as the 200,000 b/d Nghi Son refinery in the central region began commercial operation in November 2018.

"PetroVietnam could seek to kill two birds with one stone by channeling crudes which are hard to sell at current low-price competitive environment for SPR building," Lim said.

In addition, PetroVietnam said it will also consider acquiring domestic and overseas oilfields to take advantage of low oil prices as many upstream project operators are expected to shut or put their fields on flash sale.