Vietnam importers offer sales bonus to cut diesel inventory as virus slashes demand

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Vietnam oil importers are offering domestic retailers a commission on diesel sales, in an unusual tactic to clear high inventories built up as the coronavirus pandemic has slashed demand, according to two sources.

The move underscores difficulties they face in moving the industrial fuel in emerging economies such as Vietnam which has posted the lowest second-quarter economic growth in decades.

“Diesel demand is almost dead because it has been strongly disrupted in industrial factories where activity has been killed by COVID-19,” a Vietnam-based oil industry source said.

“So importers are offering sales commission bonuses to retailers to digest the huge inventory, but they still failed to sell.”

Refineries in Vietnam, which meet about 70% of the country’s fuel demand, usually have term contracts with retailers and traders, who, in turn, typically fill the demand-supply gap by importing fuels.

Last week, the importers offered a sales commission of about 2,500 Vietnam dong ($0.1079) per litre of diesel, a second source said. The pump price of diesel in Vietnamese cities is around 12,000 dong per litre.

Diesel, which accounts for about 30% to 40% of a refinery’s output, is used to fuel heavy machines and generators.

A source with Nghi Son refinery in Thanh Hoa province reported that its operations are being maintained at normal levels, though its fuel inventory has been higher recently.

“This is because Dung Quat refinery has suspended its production for maintenance and many importers have scaled down their imports,” he said, referring to the 130,000-barrels-per-day refinery in the central province of Quang Ngai which is currently undergoing major maintenance.

A spokesman at Nghi Son refinery did not immediately respond to a request for comment. The sources declined to be named as they are not authorized to speak with media.

Slow diesel sales in the region also caused middle distillates inventories at Asia’s oil hub Singapore to rise to over a nine-year high.

Benchmark Asian diesel margins are currently languishing 75% lower than their historical average for this time of year, Refinitiv Eikon data showed.

Vietnam’s gasoline demand has also been dented by fewer vehicles plying the streets, the sources said. ($1 = 23,176.0000 dong)