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Spotlight: Asia, excluding China, weakest link in global oil demand recovery in Q2

Highlights

Asia continued to see year-on-year growth of 1.7 million b/d in Q2 but demand was down by 1.1 million over Q1

The quarter-on-quarter decline would be even sharper at 1.4 million b/d if China is excluded, while demand in the rest of the world (outside Asia ex-China) rose 2.8 million b/d. On a sequential basis, Asia, excluding China, was the weakest link in the global oil demand recovery in Q2

Going into Q3, Asia ex-China is forecast to grow by only around 620,000 b/d, while the rest of the world is expected to rise by 4.4 million b/d

The situation is expected to improve in Q4 for Asia. Oil demand is expected to rebound by close to 1.6 million b/d in 2021, after a sharp contraction in 2020

Asia will account for only 30% of global growth in 2021 and 35% in 2022, down from 73% over pre-COVID years of 2011-19

A version of this Spotlight from S&P Global Platts Analytics was first published July 30.

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Asia's year-on-year oil demand growth was dampened by the resurgence of COVID-19 over the last couple of months. Growth weakened to 835,000 b/d in May amid the second wave of infections in India, down from 4.3 million b/d in April on a weak base in 2020. June is estimated to have posted negative growth for the first time since December 2020 as a result of stricter COVID-19-related movement restrictions in Southeast Asia, as well as other countries including Japan, South Korea and Australia. Asia saw year on year demand growth of 1.7 million b/d in Q2, due mainly to the weak base of 2020.

Asia's demand in Q2 was down by 1.1 million over Q1. The quarter-on-quarter decline would be 1.4 million b/d if China is excluded. The rest of the world saw demand grow by 2.8 million b/d as many countries started to reopen their economies. China's demand grew by 305,000 b/d over the same period. On that basis, Asia ex-China was the weakest link in the global oil demand recovery in Q2.

Going into Q3, Asia ex-China is forecast to grow by around 620,000 b/d while demand from the rest of the world is expected to rise by 4.4 million b/d. As such, Asia's oil demand recovery is expected to remain patchy in the near term. In terms of manufacturing PMI, India bounced back strongly but fell below the 50 level in June, which indicates that the manufacturing sector contracted. The PMIs of a few other countries also fell below the 50-level, including Malaysia, Thailand and Vietnam, amid the pandemic. For many countries, the services sector was hit even more by the strict social distancing measures.

As for driving activity, Asia's weighted mobility index excluding China averaged around 106% of pre-COVID levels in July, up from 98% in June, driven by the improvement in India. Southeast Asia's mobility index fell from 94% of pre-COVID levels in April to 72% in July. India's index improved from 57% in May to 150% in July. Japan's mobility was also affected by the state of emergency measures in the country, but rose to a new high amid the ongoing Olympic games before easing back over the last couple days.

There has been a decline in driving activity in Australia lately due to another outbreak as a result of the Delta variant of the coronavirus, with the index dropping to 92% of pre-COVID levels in July, down by 21 percentage points from the recent high in April.

The outlook for Southeast Asia in August remains a concern as COVID-19 continues to rise in some countries. Indonesia's daily infections started to ease after reaching a peak of over 56,000 on July 15, but cases remained high.

Malaysia hit a record high for new COVID-19 cases on July 29, with 17,408 infections. Malaysian authorities have ended the enhanced movement control order and easing measures in most locations, including the capital Kuala Lumpur and the state of Selangor as of July 20, despite rising cases in the country.

Thailand reported a daily record of 17,669 new coronavirus infections on July 29, even as the government imposed tighter lockdown measures in the capital Bangkok, and 12 high-risk provinces, suspending most domestic flights and expanding the curfew area.

In Northeast Asia, Japan and South Korea also recorded new highs over the past couple of days.

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However, the situation is expected to improve for Asia in Q4, leading to a whole year growth of 1.6 million b/d, after a sharp contraction in 2020. Asia will still be heavily dependent on China and India in 2021, with the two countries contributing to 67% of regional growth. Asia will account for only 30% of global growth in 2021 and 35% in 2022, down from 73% over pre-COVID years of 2011-19.

Nonetheless, Asia's demand recovery will still be the fastest among all regions despite current weakness in Southeast Asia and Northeast Asia, with the region's 2021 demand down by 0.8% compared with 2019 levels. The pace of vaccine rollout in Asia has picked up in recent months. Many developed countries in the region like Japan and South Korea are doing better than the world average with respect to the percentage of population that is fully or partially vaccinated against COVID-19. Many developing countries, including those in Southeast Asia, are still behind but are making efforts to secure more vaccines in the second half, so we are still hopeful that there will be robust growth later in H2 with the widening of the vaccination drive in the region.

37th Asia Pacific Petroleum Conference (APPEC 2021) | September 27-29, 2021

APPEC 2021 is Platts Asia's first hybrid event, featuring more than 100 speakers from over 20 countries, with a single platform for global delegates and exclusive sessions with top decision makers. Tune in as we shape and map the future of energy as an APPEC community.

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