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Vietnam fuel distributors mull storage play to limit sales losses, recover inventory value

Highlights

Petrolimex, PV Oil report $77 million, $23 million Q1 losses, respectively

State-run, private distributors seek storage for later sales

But Vietnam lacks storage facilities, SPR infrastructure

Singapore — Vietnam's state-run oil companies have reported big sales and inventory losses in the first quarter on tepid domestic demand and ultra low oil prices, prompting the top fuel distributors, as well as smaller private trading companies, to consider storing oil products for future sales to minimize their losses.

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Petrolimex, which accounts for around half of domestic oil product sales, reported a loss of VND1.813 trillion ($77.2 million) in the first three months of the year, the company said in a statement Tuesday. In comparison, the company reported a net profit of VND1.294 trillion ($55.1 million) after tax in the same period last year.

The poor Q1 results were largely due to oil prices tumbling to $20.48/b in late March from around $61.18/b early in January, said the company.

The decline in prices has affected Petrolimex's inventory value in the period. The company had to a set aside a provision of VND1.5 trillion ($63.8 million) for the devaluation of the inventory.

In addition, Petrolimex's sales volumes in Q1 fell 10% compared to the same period in 2019 as consumer and industrial demand faltered due to the slowdown in economic activity amid the country's battle to contain the spread of COVID-19, said the company.

Petrolimex's Q1 sales also declined 8% year on year at VND38.478 trillion ($1.64 billion).

PV Oil, the country's second biggest fuel distributor that accounts for around 20% of domestic oil products sales, reported an accumulated loss of VND538 billion ($22.9 million) in Q1. PV Oil is a trading arm of state-run PetroVietnam.

Maximum storage

Several small private oil trading and distribution companies operating in Vietnam have made a few inquiries on possible lease of storage tanks owned by state-run companies, two fuel marketing sources at PetroVietnam told S&P Global Platts.

"Many private distributors and traders had picked up some fuels when Asian benchmark prices were at around $50-$60/b level...it would be a big loss to resell them in the secondary market since domestic retail and international prices went much lower since then," said one of the PetroVietnam marketing sources.

The Platts FOB Singapore 92 RON Gasoline outright benchmark averaged $62.57/b in February, $35.19 in March and $19.44/b in April.

The marketing sources declined to comment when asked about the company's willingness to lease storage space at its onshore oil tanks to private trading companies.

However, PetroVietnam may also consider riding the current contango structure in the market to store as much fuel as possible and sell at higher prices in future dates, said the sources.

The front-month and second-month Singapore gasoline swap spread fell to minus 8 cents/b on March 13, marking the first time the market structure flipped to contango since assessed at minus 9 cents/b on February 9, 2019.

The contango has widened in recent weeks, with the spread pegged at minus $1.70/b on Tuesday.

A contango in the crude market structure represents higher prices for forward month contracts than the current spot price. In essence, contango occurs when market participants are expecting future prices to be stronger than prompt prices, hence providing an impetus for trading firms and refiners to store oil for later use.

However, Vietnam's severe lack of storage facilities and the country's underdeveloped strategic petroleum reserves could mean that both state-run and private fuel distributors would have limited number of cargoes to ride out the contango market, said industry sources.

There is a limit to how much Vietnam traders can store for hopes of a future price rebound. They would still need to sell at a loss to at least supplement minimum domestic consumer and industrial requirements, a trading manager at Saigon Petro told Platts.

"Imported gasoline cargoes are very cheap these days so another solution could be to slash refinery operations further and meet domestic demand with the cheap overseas barrels," said the trading manager.