Opec left its global oil demand forecast for 2021 unchanged in its monthly outlook report, due to an economic rebound in the second half of the year but the bloc sees energy consumption in India, the world's third-biggest consumer of oil, collapsing because of the surge in Covid-19 infections.
The group maintained its global demand forecast for 2021, which sees an increase of 6 million barrels per day to average 96.5 million bpd for the year, according to its monthly market report released on Tuesday.
The rising number of infections in top energy-consuming countries such as India and Brazil will weigh on demand in the first half of the year. Slower-than-anticipated consumption in the Americas region of Organisation for Economic Co-operation and Development countries in the first quarter also impacted Opec's earlier forecast.
However, these developments are likely to be offset by "positive weekly transportation fuels data from the US and the acceleration in vaccination programmes" in the second half of the year, Opec said.
"The assumed return to normality and improved mobility will also positively influence regions such as the Middle East and Other Asia," the group said.
However India, one of the fastest growing demand centres for crude, is expected to curtail its demand over the coming months. The South Asian nation has emerged as a Covid-19 hotspot, with local, highly infectious strains of the virus spreading rapidly across the country.
India has registered nearly 23 million cases so far, according to Worldometer, which tracks the pandemic. The government has been reluctant to impose a nationwide lockdown similar to the curbs implemented last year, which severely crimped its overall demand for crude and led its economy to shrink 8 per cent in 2020. India's economy was forecast to expand 12.5 per cent this year, according to the latest outlook from the International Monetary Fund, but that was before the resurgence of Covid-19.
The country has grounded flights and several state governments have imposed at least two weeks of lockdown.
India’s refined products demand is expected to drop to 2.8 million bpd in May 2021, a 160,000 bpd downward revision due to the debilitating second wave in the country, Rystad Energy said in a note on Tuesday.
The mobility restrictions will limit demand from the end of April, well into May and possibly June, impacting the whole of second quarter oil demand for the country, according to Opec.
"Some support might emerge from increased usage of private vehicles over public transportation which could cap declines in transportation fuels demand," the report added.
The Vienna-based bloc expects to see higher growth from India's industrial sector towards the second half of the year.
"A positive baseline impact of 2020, stimulus measures taken by the government to encourage private consumption and investment, and a pickup in vaccination rollouts towards the second half" will encourage growth, it said.
Demand for oil is also supported by the global economy rebounding return to growth of 6 per cent this year as most developed economies are expected to rebound, after the world economy contracted by 3.3 per cent in 2020.
Oil prices have gained more than 30 per cent year to date, supported by a slow return to normality in some of the more developed states. Vaccination rollouts in OECD countries have also improved mobility, and demand for fuel products.