USA: The number of trucks using China's highways has significantly decreased recently. The premium of diesel over crude futures in Europe recently fell to its lowest point in more than a year.
Demand in the US is expected to decrease 2% in 2023, according to S&P Global Inc. That 2% decline would be the largest decline in American diesel use since 2016 if 2020, when much of the economy briefly came to a standstill, is excluded.
Debnil Chowdhury, S&P's head of Americas fuels and refining, stated that we are "assum[ing] one of the worst economic climates in recent memory outside of the 2008–2009 financial crisis and the pandemic."
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No matter how you slice it, many of the world's largest economies are seeing a decline in demand for the heavy-machinery fuel that powers everything from commercial trucking fleets to construction machinery.
The pullback has recession watchers on high alert as it is seen as an early sign of weaker industrial activity and decreased consumer spending.
According to Ben Ayers, a senior economist with Nationwide Economics in the US, "Diesel demand can act as a leading indicator for broader growth as an early sign that household spending is slowing down."
"A predicted decline in diesel demand fits with growing economic recession risks,"
Diesel prices have been declining amid worries that many of the world's largest economies face rocky times ahead. Diesel was once the most popular fuel in the world after Russia's invasion of Ukraine disrupted trade flows.
According to economists, the likelihood of a US recession and a European one within the next year is 65% and 49%, respectively. Although the risk is lower in China, the nation's recovery from its previously strict Covid-19 restrictions will still call for a rapid and noticeable increase in consumer confidence.
Trucking, which uses more than 70% of diesel in the US and consumes about 60% of it in China, is largely to blame for the decline in demand for diesel. According to data compiled by the Chinese Ministry of Transport, the number of trucks using the country's highways decreased by 8% during the week ending April 9.
According to data from OilChem, commercial diesel stockpiles nationwide, excluding those at state refineries, swelled to an eight-month high in early April.
A private survey indicates that China's manufacturing activity unexpectedly decreased in March, which slowed factory gauges throughout Asia and contributed to the decline in demand.
Demand is deteriorating as growth slows in the region's emerging markets, including Indonesia, where the government has begun reducing fuel subsidies, according to Daphne Ho, senior analyst at Wood Mackenzie.
Other regions of the world are experiencing comparable trends.
According to Koen Wessels, senior oil products analyst at Energy Aspects Ltd., "European demand has been soft through the winter on muted heating demand, and macro headwinds are clouding the demand outlook."
According to Bob Costello, chief economist at trade association American Trucking Associations, the US has seen a decline in manufacturing output, a drop in home construction, and retailers working off high inventories, all of which have a negative impact on trucking and, consequently, diesel consumption. According to one metric provided by supply chain intelligence company FreightWaves, trucking volume in March fell to its lowest seasonal levels in five years.
A change in consumer spending habits is to blame for the US trucking slowdown: vacations and experiences have taken the place of the constant stream of internet orders to stave off pandemic boredom.
Consumer packaged goods like sodas, referred to in the trucking industry as "high-volume shippers," are among the first items people stop purchasing as inflation squeezes household budgets.
According to Craig Fuller, CEO of FreightWaves, "the cheaper goods that tend to move in large volumes are affected whenever we see consumers stretched due to inflation." The volume of goods that are transported through the economy as a whole is decreased as a result of small choices like skipping soda.
On the West Coast, where there have been numerous tech sector layoffs and a developing banking crisis, the decline in US diesel demand will be particularly noticeable.
According to S&P's Chowdhury, the diesel demand there will decline by 5% this year, which is more than twice the national average.
Pressure is also being placed on US container imports, a leading indicator of diesel consumption from the trains and trucks that transport them across the nation. Inbound shipments are at their lowest point in Los Angeles since March 2020.
According to data compiled by China's Ministry of Transport, throughput of containers at significant ports in China, which is shipping out many of those cargoes in the first place, decreased by 5% in the week ending April 9.
According to Mia Geng, head of China oil service at industry consultant FGE, "We see more downside than upside to Chinese diesel demand in the second half of the year."
China will need to rely on domestic consumption to support its manufacturing activities due to global economic headwinds, particularly in the West.
Of course, not everything is bleak. According to Janiv Shah, a senior analyst at Rystad Energy, Europe's demand for ultra low-sulfur diesel is expected to increase by almost 9% between March and July, helped in part by summer travel.
After releasing millions of barrels of petroleum products in response to protracted labour strikes, French authorities will most likely eventually replenish strategic reserves.
But in the US, according to FreightWaves' Fuller, the demand for diesel isn't expected to pick up anytime soon in the absence of a government stimulus to boost the economy.
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When compared to petrol, where higher prices cause motorists to delay filling up, cheap fuel can tempt them to return, diesel demand is different.
According to Fuller, people move goods not just because they are inexpensive to move but also because "someone on the other end has made the order and is there to receive it."