Dour but Differentiated Demand
Global oil consumption growth has slowed to a near-flatline, but product-level trends highlight the schism between flagging industrial demand and stubbornly resilient consumers
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Global oil demand growth is running essentially flat, adding yet another factor to the weight of widely-held and mounting recessionary concerns.
Look beneath headline demand, however, and product-level consumption gains reveal a bifurcated market split between flagging industrial-linked diesel and more resilient—even reaccelerating—consumer-driven gasoline and jet fuel.
High-frequency US demand data confirms the persistence of this trend over the past couple months; however, an overreliance on unadjusted weekly data is likely exacerbating market alarm beyond what is currently justified.
Economic uncertainty abounds and big questions remain around the current macro climate and the probability and potential severity of a recession. Each US regional bank failure, EM hiccup, off-expectation data print, and/or hint at a shifting Federal Reserve policy stance has kept crude prices yo-yoing all year. But underlying this risk sentiment mayhem whipping oil markets about, there are also real, fundamental concerns about the recent trajectory of crude demand.
Specifically, demand conditions began weakening in mid-2022 and have continued to do so through today. But is this the full story? I think not.
Instead, there appear to be two distinct trends emerging in product-level consumption: one of consumer demand recovery—with strong employment and travel hitting pre-COVID all-time highs, at least based on the latest flight tracking data—and, then, one of continued weakness in the business sector weighed down by uncertainty and rising interest rates. This post will dig a bit deeper into this business-consumer divide, analyzing the relative trajectories of the industrial-linked fuels like diesel (or gasoil) and consumer-centric fuels like gasoline and jet fuel.