SINGAPORE - Global fuel demand is expected to reach pre-pandemic levels by early next year as the economy shrugs off pandemic woes, but spare refining capacity is likely to weigh on outlook, oil producers and traders said on Monday.

While a persistent rise in COVID-19 infections in several markets has hurt recovery in demand for some refined products such as jet fuel, consumption trends of petrol and diesel indicate higher growth, the industry leaders said.

They were speaking at the Platts APPEC 2021 conference that is being held in a hybrid format this year, including both in-person and virtual participants.

"We saw refining margins rebound as demand rebounded ... But overall for the world, there's still a lot of unutilised capacity and a lot of capacity has been taken off stream," said Eugene Leong, president of BP Singapore and CEO of BP's trading & shipping arm of Asia Pacific and the Middle East.

"The spare (refining) capacity is probably going to act as a little bit of a cap on margins," he said in a pre-recorded speech for the conference.

"This year alone we've seen some mega refining (and) petrochemical complexes start up, so I think that's going to be challenging for refining."

In China, new mega refiner Shenghong Petrochemical is set to start trial operations soon, while Zhejiang Petrochemical completed two new crude units earlier this year.

Malaysia's Petronas also hopes to restart operations at its 300,000 barrels-per-day refinery-petrochemical complex with Saudi Aramco by year end, said Arif Mahmood, Petronas' executive vice president and CEO of downstream.

However, recovering demand is expected to boost profits for refiners and create more room for returning or new production.

GLOBAL DEMAND RECOVERY

Brent crude futures LCOc1 have jumped more than 50% this year to their highest since October 2018, helped by a recovery in fuel demand as well as tighter supplies from the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+. O/R

U.S. oil and gas producer Hess Corp expects global demand to climb to pre-pandemic levels of 100 million barrels per day (bpd) by the end of this year or early 2022, its president, Greg Hill, said.

The International Energy Agency (IEA) has also forecast a robust rebound from the fourth quarter, citing "strong pent-up demand and continued progress in vaccination programmes".

It expects global oil demand to average 96.1 million bpd in 2021 and 99.4 million bpd in 2022, versus 90.9 million bpd in 2020. The OPEC expects demand to average 99.70 million bpd in the fourth quarter of 2021.

Meanwhile, India's private refiner Nayara Energy hopes to operate its 400,000 barrels per day (bpd) refinery at close to 100% capacity in 2021 as fuel demand picks up, CEO Alois Virag said.

India's fuel demand is likely to rise by 9%-11% as its economy is "steered towards higher growth" after the easing of the second wave of COVID-19 infections, he said.

"When it comes to refining, petroleum products, we remain cautious," said Petronas' Arif, adding that travel curbs continue to weigh on aviation fuel demand recovery.

"We'll see recovery hopefully towards the end of this year, early next year," Arif said, adding "there's oversupply of refining capacity".

(Reporting by Florence Tan, Koustav Samanta, Roslan Khasawneh and Jessica Jaganathan in Singapore, Sonali Paul in Melbourne and Nidhi Verma in New Delhi; Editing by Himani Sarkar) ((koustav.samanta@thomsonreuters.com ( +65 6870 3503) (Reuters Messaging: koustav.samanta.thomsonreuters.com@reuters.net))