Jan 10, 2022
Asia’s oil demand may finally be on a sustained upward trend after a long period of uneven growth, with consumption in China and India looking increasingly resilient, but how OPEC+ members plan their supply response will be crucial in supporting this recovery.
The maiden decision in 2022 by OPEC and its Russia-led partners to approve another hike in production quotas — betting the market can absorb more oil in the coming months despite surging COVID-19 infections — will be music to the ears of Asian oil importers witnessing a fragile economic revival.
“As we leave the worse days of the pandemic behind, the oil and gas market is already on a steady volume and price recovery mode since the historic lows in mid 2020 and in 2022,” Pankaj Kalra, CEO of Essar Exploration and Production Limited,” told S&P Global Platts.
According to Platts Analytics, Asian oil demand is projected to rise by 1.7 million b/d in 2022 and reach 103% of pre-pandemic levels, up from the 1.2 million b/d growth seen in 2021, although the full impact of the omicron variant of the coronavirus is still being assessed. Growth will be driven by middle distillate demand, which is expected to rise by 1.0 million b/d in 2022.
“Apart from China with zero-COVID policy, most countries in the region are moving toward re-opening of economies despite seeing a rise in omicron cases. Any lockdowns are likely to be localized and more targeted, with less impact on oil demand than in the past,” said Lim Jit Yang, advisor for Asia-Pacific oil markets at Platts Analytics.
Affirming a 400,000 b/d output increase for February on Jan. 4, the OPEC+ alliance signaled continued confidence that the omicron variant will have a smaller impact on global oil demand than previously assumed. Crude prices have so far proved resilient, hovering above $80/b.
The 23-country alliance, which controls about half of the global oil production capacity and instituted a record 9.7 million b/d cut during the market crash of spring 2020, has been gradually restoring output in 400,000 b/d monthly increments, aiming to regain pre-pandemic levels by late 2022.
“Whilst there might be a short-term blip in Q1 with China going in for harsh lockdown conditions and others like India, South Korea and ASEAN members implementing some level of restriction to their economy and to travel, the overall outlook for crude oil is encouraging,” said Rajat Kapoor, an oil & gas consultant and advisor based in Mumbai.
Asian countries are increasingly showing signs of robust demand recovery.
India’s crude imports in November reversed a declining trend to hit its highest level in 10 months as refiners built inventories in anticipation of higher runs. The country imported 18.37 million mt, or 4.5 million b/d, of crude in November, up 7.5% month on month, the latest provisional data from the country’s Petroleum Planning and Analysis Cell showed.
“China and India will resume their front-line status as the engines of growth in 2022, but Southeast Asia will also contribute substantially, especially in countries with high vaccination rates,” Platts Analytics said.
Refiners in South Korea and Japan were broadly cautiously optimistic that global oil demand recovery momentum would extend into 2022, with revival in the regional aviation industry holding the key to Asia’s full transportation fuel demand recovery to pre-pandemic levels.
Seven middle distillate marketers and distribution managers at five major South Korean and Japanese refiners — including Cosmo Oil, S-Oil Corp, ENOES — surveyed by Platts indicated that Asia’s jet fuel demand could recover to at least 70% of the pre-pandemic 2019 levels this year, which would ultimately lead to higher refinery runs, crude imports, as well as oil products output.
With gasoline and diesel consumption gradually catching up to the pre-pandemic levels, the South Korean refinery sources and fuel marketers said jet fuel is the one last missing puzzle.
South Korea, Asia’s fourth biggest oil consumer, saw its combined gasoline, diesel and jet fuel demand rise to an estimated 740,000 b/d in 2021 from 729,000 b/d in 2020, according to latest data from Korea National Oil Corp. However, the 2021 level remained below 804,000 b/d seen in 2019.
“Ultimately, if the full recovery in the aviation industry and jet fuel demand unfolds, this will likely put strong pressure on OPEC+ to raise the pace of the group’s crude production hike to cater to higher throughput and run rates across Asia,” said a senior crude and distillate fuels trader at S-Oil.
Asian refiners believe the global crude supply remains very tight and outright oil prices overheated. The end-users are continuing to call for the OPEC+ to raise supply by at least 800,000 b/d, doubling the producer group’s current stance to increase output by a modest 400,000 b/d.