report micro nhóm 2analysis of changes in the market price of oil and gas in the period occurring russia ukraine conflict

c More understanding of the gas market and the current situation After learning and researching, we will be able to have new and more understanding of the gas market, the current situati

HỌC VIỆN NGÂN HÀNG

LỚP: K24CLC- QTA

MICROECONOMICS

Instructor: Mrs Nguyen Thi Hoai Thu

TITLE:

Analysis of changes in the market price of oil and gas in the

period occurring Russia Ukraine conflict –

GROUP 2 Full name Student ID Main tasks

Chu Ng c Anh ọ 24A4032634 Leader - Content part 3 - Report

completion

Đỗ Hoàng Anh Thy 24A4030740 Presentation - Report completio Kiều Ngọc Minh Dương 24A4030769 Presentation

Phạm Bùi Thùy Linh 24A4030805 Content part 4 - Powerpoint Thái Phương Ngân 24A4031494 Content part 3 Report –

completion Nguy n B o Trang Nguyên ễ ả 24A4031499 Content part 5 - Powerpoint

Lê Minh Th o ả 24A4031517 Content part 1 and part 6

Lê Thùy Chi 24A4032653 Content part 2

TABLE OF CONTENTS

PART 1: INTRODUCTION 1

1.1.Key information about oil and gas and The reason why we choose this topic 1

1.2 The purposes and meanings of the report 2

1.3 The scope of our study 2

PART 2: THE SUPPLY-DEMAND THEORIES 3

2.1 Definition of Supply/Demand and The basics of them 3

2.2 The Supply-Demand theories and How they determine the market price 5

PART 3: ANALYSES OF CHANGES IN THE MARKET PRICE OF OIL AND GAS IN THE PERIOD OCCURING RUSSIA-UKRAINE CONFLICT 6

3.1 Overview and the reason for the repercussions in the Vietnam market 6

3.2 Applying the theories to analyze the changes 7

PART 4: FORECAST ON THE VIETNAM MARKET PRICE 11

PART 5: POLICY RECOMMENDATIONS 12

PART 6: CONCLUSIONS 13

REFERENCES: 14

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Part 1

INTRODUCTION

1.1 Key information about oil and gas and The reason why we choose this topic

1.1.1 Key information about oil and gas

In general, a significant portion of the economy is devoted to the oil and gas sector, which includes companies like the Vietnam National Oil and Gas Group (Petrovietnam) and the Vietnam National Petroleum Group (Petrolimex) and both of them have greatly aided the nation's growth The oil and gas sector, as a whole, consistently contributes significantly to state budget revenues, provides

a sizable amount for Vietnam's export revenue, and draws foreign investors who bring capital and cutting-edge technology to the country

In recent times, businesses benefit from a rise in crude oil prices as a result of the conflict between Russia and Ukraine, but this situation has a negative impact on the development and exploitation

of Vietnam's oil and gas reserves

Because of the conflict in Ukraine, Russia has become the most sanctioned country in the world, with Western powers attempting to thwart attacks on its economy It is the effects on the country's energy markets that have thrown the oil and gas industry into turmoil, with oil prices climbing to

$130 per barrel According to the experts, "Vietnam's energy industry is highly dependent on Russian equipment, so it will face barriers in the future if an alternative source cannot be found in time; the risk will affect a number of activities; the effects when economic relations, especially energy supply chains are likely to be upset”

1.1.2 The reason why we choose this topic

a) The updated topic in an economy’s boom event: The Russia’s invasion

From the beginning of 2022 until now, the petroleum market has had many fluctuations, particularly in a booming event known as The Russia’s invasion Consequently, there is a reservoir

of knowledge about this economy’s situation that we can explore and equip because we are represented the Generation Z in the digital technology era

b) Oil and gas are essential fuel sources in Vietnam

Oil and gas are extremely essential and strategic fuel sources in Vietnam, serving the travel and production needs of people And it is also a market that is quite close to us, which is interested by

a lot of people, updated with very specific and detailed statistics over the years, even monthly Oil

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and gas are attached as indispensable parts of our daily life In the petroleum market, gasoline is mainly used for light vehicles: motorcycles, motorbikes, cars, and so on

c) More understanding of the gas market and the current situation

After learning and researching, we will be able to have new and more understanding of the gas market, the current situation of petroleum, the market's balance of supply and demand, and government intervention in the petroleum market through the Russia-Ukraine period However, besides the benefits that gas brings, we also need to know that they are not an inexhaustible resource and it can be exhausted at some point in the future Therefore, mastering the knowledge about this market as well as how to use it are very important things to be noted

1.2 The purposes and meanings of the report

Although Vietnam has oil and gas reserves and is capable of producing its own oil and gas, why

do we constantly need to import petroleum products from overseas, especially during the Russia-Ukraine period? Residents do not understand why the price of gasoline has increased so suddenly

at this time How should the government work, what specific measures should they take to gradually bring gasoline prices back to their initial levels? What needs to be done to restore the petroleum industry to its original equilibrium?

To answer all these questions, the report will detail a topic that deserves people’s and researchers’ attention because it not only helps us understand the country's petroleum problem in the war period, but it also helps us comprehend more about economic issues in our country and abroad in general Our report will study about prices, supply and demand, consumer’s and seller’s behaviour

in the petroleum market both before and after the Russia-Ukraine war occurred At the same time,

we will forecast the domestic market and future government policies based on our existing knowledge and research

1.3 The scope of our study

• About the scope study the Vietnam oil market :

Due to the enormous impact of the recent conflict situation between Russia and Ukraine, Vietnam's petroleum industry will face difficulties and barriers in the future For that reason, there are numerous domestic economic problems (inflation, the supply chain disruption, consumer demand, peak price, and so on) that our report can analyse, simultaneously, our report will give the latest data on the fluctuation of petroleum in the Vietnam oil and gas market

• About the time: before and after the conflict between Russia and Ukraine

Before the war, Vietnam’s petroleum industry was under pressure of the COVID-19 pandemic After the war, the disruption of international trade due to sanctions from the US and the Western

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countries with Russia still affected the operation of Vietnam's oil industry While many Asian countries including Vietnam remain committed to maintaining trade relations with Russia, disruptions to international trade and Russia's exclusion from the global payment platform (SWIFT) have made some difficulties to the domestic economy

• About the method: using supply-demand theories and external references

Owing to the application of supply-demand theories in combination with external references, the report will analyze how different factors significantly affect the supply, demand and price of gas and oil before and after the Russia’s invasion

Part 2

THE SUPPLY-DEMAND THEORIES

Demand and supply analysis is the study of how buyers and sellers interact to determine transaction prices and quantities As we will see, prices simultaneously reflect both the value to the buyer of the next (or marginal) unit and the cost to the seller of that unit In private enterprise market economies, which are the chief concern of investment analysts, demand and supply analysis encompasses the most basic set of microeconomic tools

2.1 Definition of Supply/Demand and The basics of them

First, in economics, Supply is defined as the total amount of a specific good or service that is available to consumers Moreover, there are some related definitions about it :

Quantity supplied describes the number of goods or services that suppliers will produce and sell

at a given market price The quantity supplied differs from the actual amount of supply (i.e the total supply) as price shifts impact on how much supply producers actually put on the market The supply curve is a graph of the relationship between the price of a good and the quantity supplied

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This is an example of the supply curve - the black line A factory worker is paid $10 for providing his services to the factory for 50 hours per day However, due to the heavy workload, more services were required per day for which the worker will provide 100 hours if only he is paid 10 dollars higher

There are several elements that affect the supply curve such as the number of sellers, input prices, technology and expectations about the future

Second, the term ‘Demand’ in economics reflects the consumer's desire and ability to purchase a

good or service The demand for goods increases or decreases depending on several factors This includes the product’s price, perceived quality, advertising spend, consumer income, consumer confidence, and changes in taste and fashion

Quantity demanded is a term used in economics to describe the total amount of a good or service that consumers demand over a given interval of time It depends on the price of a good or service

in a marketplace, regardless of whether that market is in equilibrium

The demand curve is a graph of the relationship between the price of a good and the quantity demanded

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And this is an instance which illustrates the demand curve A shopkeeper was offering a box of chocolate at the price of $20, for which he was able to sell 50 boxes on average every week He decided to offer a 50% discount, decreasing the price to $10 This resulted in an increase in his sales to 100 boxes each week

Shifts in the demand curve are caused by changes in several factors namely the number of buyers, income, prices of related goods, tastes and expectations

2.2 The Supply-Demand theories and How they determine the market price

From the perspective of an economist, the theories of Supply and Demand and their effects contribute significantly to the study of the market price in a specific period

First, price depends on the interaction between the demand and supply components of a market Demand and supply represent the willingness of consumers and producers to engage in buying and selling An exchange of a product takes place when buyers and sellers can agree upon a price Second, the supply and demand theories state that higher demand for particular goods or services results in higher prices because suppliers need more revenue to produce, and vice versa For instance, oil and gas are commodities that people want to purchase They also are products that companies want to sell The prices for those commodities will fluctuate due to supply and demand

Regarding demand, when consumer demand for a commodity rises, the supplier will meet that demand at a higher price In the gasoline market, the summer driving season is a good example when there are numerous holiday-makers’ visits paid Many fuel retailers, especially along interstates and major highways, will raise prices to meet the increased demand for fuel by the traveling public On the contrary, when demand decreases, the supplier will decrease prices to encourage consumer purchases When the summer travel season is done, demand for gas drops Therefore, many fuel retailers will lower their prices to entice their regular customers to come and fuel up

In terms of supply, as they increase, suppliers will lower their prices due to the abundance of products This encourages consumers to purchase more, leading to a considerable rise in suppliers’

profits In contrast, when supplies decrease, suppliers will raise the price due to the scarcity of the resource For example, in 2020, Corona virus spreaded all over the world A number of countries faced this pandemic, especially Vietnam At that time, face masks were the mainstream items that helped people protect their health from viruses, therefore, numerous people wanted to buy them This led to an increase in face masks’ price On the other hand, when the plague was over, the

price of face masks reduced because the demand for them decreased

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Part 3

ANALYSES OF CHANGES IN THE MARKET PRICE OF OIL AND

GAS IN THE PERIOD OCCURING RUSSIA-UKRAINE CONFLICT

3.1 Overview and the reason for the repercussions in the Vietnam market

3.1.1 Overview of the Vietnam market in the period of Russia-Ukraine conflict

In general, the Russian invasion of Ukraine on 24 February had a massive impact on not only global fuel prices but also Vietnam’s petroleum industry Petrol prices soared to record highs in

Vietnam in March, driven predominantly by increased demand following the easing of pandemic restrictions and supply disruptions caused by the war At this time, with the world crude oil price smashed through $100 a barrel, the price of gasoline in the domestic market has also exceeded the mark of 26,000 VND per litre The cost of finished petroleum products in Vietnam, simultaneously, was likely to continue to increase However, this situation has had both advantages and disadvantages regarding the repercussions by the time the war occurred

In terms of the drawbacks, a sharp increase in crude oil and petroleum product prices negatively affects the economy and people's lives According to recent research, Mr Nguyen Bich Lam, former General Director of the General Statistics Office, said that “Vietnam's economy depends heavily on imported raw materials Therefore, the fact that the world oil price is still on the rise continuously will increase the price of imported and domestic raw materials” In addition, high

gasoline prices contribute to increasing the cost of virtually all goods and services further fuelling inflation expectations

Regarding the benefits, when the price of crude oil exceeds the mark of 100 USD per barrel, it creates a great impact on businesses, especially the transportation industry and the manufacturing industry that uses petroleum as raw materials and input fuels, thereby pushing up production income For instance, for the oil and gas transportation industry in Vietnam, enterprises with a high level of participation in the international market such as PVTrans (PVT) will gain the most profit from the increase in tanker and fuel freight rates Currently, 80% of PVTrans' fleet is operating on international routes to raise their revenue higher Besides that, Gas Shipping (GSP) and PV Trans-Pacific (Vietnam Oil Transportation Joint-stock company - PVP) are also operating crude oil and fuel tankers in the international market

3.1.2 The reason for the repercussions in Vietnam’s market

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The Russia-Ukraine conflict which began on February 24, sent shockwaves to global markets and led to an unprecedented response from countries around the world in the form of economic sanctions and other restrictive measures In doing so, Western countries and allies are sending a clear signal that they want to cut Russia off from the global financial system and isolate Putin politically

Russia is the world's third-largest oil producer, behind the United States and Saudi Arabia, and a top global exporter, according to the International Energy Agency (IEA) In September 2022, due

to the ban on seaborne imports to the European Union (EU), crude oil production in Russia was estimated at only 9.7 million barrels per day, which had decreased slightly from the previous period Disruption in the journey from Russia to the pipelines in Europe has affected global energy supplies On the other hand, Vietnam's energy industry relies heavily on Russian equipment, so it will face difficulties and barriers in the future if it does not find an alternative source in time Because of the shortage of petroleum sources, the price of gasoline in Vietnam soars and affects the petroleum energy industry in Vietnam

3.2 Applying the theories to analyze the changes

The theory of Supply and Demand is a central concept in the understanding of the economic system and its function, specifically the market price before and after Russia’s invasion in the early years

of 2022

• Before the war:

Before the war broke out, the world’s economy experienced a tough time because of the

COVID-19 pandemic, which delayed all economic activities such as trade, consumer purchases, selling activities, and so on This did not affect considerably the supplies but led to a dramatic drop in the price of crude oil and gasoline; thus, a drop in new spending and investments of oil companies The demand for goods and services at this hard time also declined significantly Then, the global economy had a recovery due to the prompt actions to prevent the COVID-19 disaster, and customers began to resume their regular activities, making the increased demand for crude oil while the supply was not able to keep pace The economy bounced back gradually and the market price remained stable, at the equilibrium price

• After the war:

Regarding supply, Russia is the top exporter and producer of oil globally, along with the great diplomatic relations between the two countries, hence Vietnam becomes the promised market importing an enormous volume of oil from Russia However, in response to the invasion of Ukraine, the EU has imposed unprecedented sanctions against Russia, making it struggle to profit from the oil industry so far Simultaneously, supplies of oil and gas decreased significantly in the

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amount as Russia shut down a key pipeline to Europe and other countries As a consequence, Vietnam’s petroleum faced a shortage of oil imports as well as petroleum products The cause of the shortage (Demand exceeds Supply) in the economy is that the import prices of some raw materials and input materials for domestic production in the first quarter of 2022 increased over the same period last year as gasoline prices increased by 40.44% compared to the initial price level

In terms of demand, according to economists who analyze the market, the primary reason prices increased toward the end of 2020 and then in 2021, is because the demand for oil around the world began to exceed the available international supply Along with this, suppliers (including Russia) can control the pipeline of oil supplies, they put crude oil in the international market and raise it to the highest bidder This is also the reason why the prices soar in Vietnam and around the world Regarding the market price in Vietnam, prices of oil and gas skyrocketed to over 32,000 VND,

a recorded number after only four months since the war ended In Vietnam, the exorbitant price is passed over to Vietnamese consumers at the pump Experts deeply believe that inflation would not peak at a higher rate in the short term, but it would be likely to remain persistently higher for longer than first thought Because of the high recorded price, consumers' demand for oil and gas or products made from petroleum decreases Citizens make fewer trips and prefer electric vehicles or those that are more conservative on gasoline When purchasing a new automobile, many consumers start considering the one using Biodiesel, which is known as an eco-friendly alternative

to petroleum When it comes to the government, Vietnam sees the urgency of looking for potential alternatives (substitute goods) such as nuclear power, solar power, or mined coal to substitute gas and oil imported in large quantities from Russia Vietnam evenly expands the car manufacturing industry by consenting lots of hybrid cars using both gasoline and electricity as fuel resources to address the supply and demand problems

• Analyse of the changes on the Supply-Demand diagram:

To better understand the petroleum market in Vietnam during the Russia - Ukraine conflict, we will apply the aforementioned theory to a Supply-Demand diagram

For example, the market supply and demand of oil and gas have an equilibrium point is A shown

in the supply-demand diagram below The equilibrium price is P1