May 2021
The growing global distribution of safe and effective COVID-19 vaccines has altered the outlook for the global economy, and that for oil demand. Reflecting an upbeat general sentiment, AME forecasts a degree of stability in the global oil industry for the first time since COVID-19 began and while considerable uncertainties remain, the risks to growth are more balanced as acute downside risks ease and upside risks emerge.

China and India will drive oil demand growth in 2021 and Iran could further complicate OPEC.  AME expects Asia-Pacific GDP to grow by close to 5.6% in 2021. However, for the region excluding China, activity is not expected to return to pre-COVID levels before the third quarter of 2021.

As AME looks ahead at 2021, here are some of the salient themes expected to bear on the oil market.

Asian Lead Oil Demand Recovery

With the worst of COVID-19 in the past, AME expects oil demand to expand by 5.3Mbpd this year to 97.9Mbpd, with Asia and particularly China and India leading the way.

However, many industry observers caution that a combination of increasing COVID-19 cases and successful vaccines means global oil demand is likely to worsen in the short run but improve six months down the road.

Asian oil demand is expected to grow by 1.7Mbpd in 2021 and will be flat to marginally below 2019, or pre-COVID-19 levels. China and India will account for around 70% of this growth.


China’s Transport Sector

Rising road transport demand largely, an upswing in industrial activity and the broadcast of government stimulus programs are some the factors driving oil demand higher in the two countries.

The bulk of the oil demand growth in China will still be from the transport sector -- normalisation and resumption of normal growth for road transportation, booming car sales and increasing private car driving.  Furthermore, petrochemicals, industrial and shipping will also drive oil demand growth higher.

The key risks to China’s oil demand recovery include a slowdown in stimulus programs. This is expected to slow the growth momentum slightly in 2022.  Despite Beijing’s strong policy focus this year of becoming self-reliant and more internally driven, the country remains exposed to the variances of the global economy.  AME forecasts China’s oil demand will grow 4.7% to 15Mbpd in 2021.



India’s PMI Holds Above 50

India is one of the worst hit by COVID-19, but the situation has been improving with recent daily new cases declining and a continued easing of restrictions. The country’s demand for gasoline and gasoil made a sharp U-turn

ahead of the festive season in late October 2020 and drove refiners to crank up operating rates. Though demand is eased in the March quarter 2021 from the festive-driven December quarter 2020, the overall outlook for next year is positive. 

This is driven by increased mobility, increased vehicle sales; and leading indicators such as manufacturing PMI holding above the 50 level over the past few months, an indication of expansion.


OPEC+ Supply Volatility

OPEC and Russia are expected to continue holding sway over the oil markets in 2021 as non-OPEC supply suffers from a fallout of the pandemic -- US crude oil production, for example, is expected to fall to 10.2Mbpd in 2021 from 13Mbpd before COVID-19. But markets can expect more volatility next year after OPEC and its partners in the OPEC+ alliance agreed this month to set output levels on a monthly basis, instead of a typical quarterly or half-yearly basis, as they grapple with how much crude oil to release in an uncertain demand recovery scenario.



OPEC+ enacted a supply cut of 9.7Mbpd in May 2020. This was eased to 7.7Mbpd in August, and will be eased further to 7.2Mbpd in January 2021. At the most recent meeting in April OPEC+ agreed to stick to plans for a phased easing of crude oil production restrictions from May to July amid upbeat forecasts for a recovery in global demand and despite surging COVID-19 cases in India, Brazil and Japan. The group will bring 2.1Mbpd back to the market from May to July, easing cuts to 5.8Mbpd.

The group’s balancing act has faced several challenges in 2020 including over production by key members Iraq, Nigeria and the UAE, and the rapid return of Libyan oil production to the markets toward the end of 2020.  More recently the supply picture has become more complicated with Iran ramping up of its oil production from January this year.  The country expects to reach pre-US sanctions levels in one to two months and is counting on selling 2.3Mbpd of combined crude oil and gas condensates.


Evolving Refining Sector

The 8.7Mbpd collapse in oil demand in 2020 severely impacted refiners globally and Asia did not escape unscathed.  Oil refineries in the Philippines and the Oceania region have either already announced closures or are seriously considering it, leaving them exposed to imports to meet most of their oil demand needs.

  • Shell recently announced that it would halve the capacity of its Pulao Bukom refinery in Singapore to lower its carbon intensity.
  • US petroleum giant Exxon Mobil earlier this year announced plans to close its Altona oil refinery in Victoria, claiming it is no longer “economically viable.”
  • In October 2020, BP announced its plans to close its Kwinana refinery in Western Australia. 
  • Australia’s only other refinery, Ampol, is undertaking a review of its Lytton plant in Queensland that could result in another refinery closure.


If all closures go through, as much as 950,000bpd of capacity will be removed, opening up export opportunities for other refiners in the region, particularly the Chinese and South Korean refineries.

China is bucking the trend and by the end of 2022, the country will have added over 1.0Mbpd of refining capacity.  China’s share of CDU capacity in the region is expected to rise to 50% in 2022, accounting for half of regional capacity, which highlights the rising influence of the nation as a refining centre.

Chinese refiners will also be best placed to supply the emerging outlets of the Philippines and Australia given the flexibility of their plants and their ability so far to weather periods of prolonged weak regional margins, with a strong post-lockdown domestic demand helping to sustain refinery economics.


Energy Transition

COVID-19 has prompted a re-examination of the role of fossil fuels, including crude oil, and speeded up transition toward a low-carbon economy. China, Japan and South Korea, which together account for 20% of world crude oil demand, have all announced carbon neutrality goals.  Though gradual, the impact of this on crude oil demand and oil investments cannot be ignored.

Peak oil demand timelines have shifted. OPEC, in October 2020, for the first time forecast the peak in global demand, estimating the world’s thirst for oil will stop growing in about 20 years. Oil demand is expected to face the biggest hit from clean transport policies and a growth in renewable energy. Though petrochemical demand and demand for long-distance transport fuels are expected to offset some of the demand destruction.

Global electric vehicle sales surged 80% year on year in September 2020 and China’s Society of Automotive Engineers, an influential industrial trade group, announced mid-October that they expect EV sales in the country to jump to 20% of overall new car sales by 2025 and to 50% by 2035 from 5% currently.

While China makes giant strides in EVs, Japan and South Korea are leading the way in hydrogen.  South Korea has launched a new future car government division that would help develop electric vehicle and hydrogen car-related technologies and has set an ambitious target of having 1.13 million EVs and 200,000 hydrogen FCVs on its roads by 2025, a 9 and 20-fold jump respectively.

In Japan, a group of 88 companies spanning various industries have launched the Japan Hydrogen Association (JH2A) to develop a hydrogen supply chain and promote its greater use as a potential new source of energy by making it widely available at an affordable price.

But even as the global economy shifts towards a low-carbon one, the world is still going to need oil and according to OPEC, to meet future demand, upstream investment through 2045 will need to average US$380 billion per year, or US$9.9 trillion cumulatively. However, access to capital for fossil fuel producers is going to become hard as international banks including Morgan Stanley and HSBC to name a few have pledged to achieve net-zero emission goals in their lending portfolio.

It is this under-investment trend that has prompted global oil major ExxonMobil to keep betting on oil while its peers including Shell, BP and Total make a shift towards cleaner fuels.