Headwinds persist. The bulk of post-lockdown oil demand recovery is largely behind us,

and the recovery momentum will likely be stalled as we head into winter. The latest mobility

data suggests that activity levels are still 20% below pre-COVID on average, and with the

lingering threat of a second wave outbreak, there will be limited upside. At the same time,

there will be ~3mb/d of newly commissioned refining capacities in 2020-21E that have to

be digested by the system, almost half of which are from Chinese independent refiners

where we expect a quick ramp-up in utilisation, resulting in higher exports out of China.

Force closures, typically a sign of bottoming GRMs, are yet to materialise under this

downturn, and history suggests that we will need to see 3-4mb/d of closures globally

before we start to see GRMs bottoming out.

Asia GRMs will likely stay lower for longer. In our Beyond the Pandemic report in May,

we expected a muted GRM uptick despite demand recovery, which has played out. With a

murky recovery pathway ahead, we now estimate Asia GRMs to be significantly below midcycle

levels through to 2021, and spreads will not recover to pre-COVID levels at least until

2022. Asia Refiners are currently operating close to breakeven cash margins, but are

prepared not to cut run-rates for a longer period, given that most are supported by

accumulated cash positions coming out of a strong margin period in 2017-19. Most Asia

Refiners are currently trading at/close to trough valuation, but the unprecedented long

period of low margins may keep multiples low for an extended period.