In China, the roads have been noticeably fewer trucks in recent weeks. In Europe, diesel’s premium over crude futures recently nosedived to the lowest level in over a year.
The US diesel use is projected to contract by 2% this year, according to S&P Global. This would be the greatest decline in the nation’s diesel use since 2016, excluding the 2020’s pandemic-induced economic standstill. Debnil Chowdhury, S&P’s head of Americas fuels and refining, said, “We are assuming one of the worst economic climates in recent memory outside of the 2008-2009 financial crisis and the pandemic.”
This pullback in demand is a tell-tale sign of weaker industrial activity and reduced consumer spending, and has alerted the recession-watchers. Ben Ayers, a senior economist in the US with Nationwide Economics, commented that diesel demand can be utilized as a leading indicator for broader growth, acting as an early sign that consumer spending is waning.
Regardless of how you look at it, the demand for the fuel that powers commercial trucking fleets and construction equipment is cooling down in many of the world’s largest economies. Prices of diesel have been dropping due to the fear of recessions in the US, Europe, and even China. Economists estimate 65% chance of a US recession and 49% chance of a European one within the next year.
Much of the decline in diesel demand is attributed to trucking, which consumes 60% of diesel in China and more than 70% in the US. In the week ended April 9, the number of trucks running on Chinese highways decreased by 8%, according to the China’s Ministry of Transport. Plus, commercial diesel stockpiles in the country, not including state refineries, hit an eight-month high in early April, as per OilChem data.
This fall in diesel demand follows China’s manufacturing activity that unexpectedly declined in March, which led to a dip in factory gauges across Asia. And, emerging markets in the region, like Indonesia, have also seen a drop in demand due to the slow growth and the government’s fuel subsidy cuts.
As for Europe, diesel demand has been soft since winter due to the muted heating demand, and the macroeconomic headwinds are not helping. In the US, the use of diesel has been hit by the decline in factory output, home construction, and retailers working off their high inventories. As per the supply chain intelligence firm FreightWaves, March trucking volume reached the lowest seasonal levels in five years.
At the root of this US trucking slowdown is the shift in consumer spending patterns as inflation shrinks household budgets. The west coast will experience the most significant slump in diesel demand this year, at 5% more than double the national average. US container imports, an indicator of diesel use from the trucks and trains that move them around the country, are also at their lowest level since March 2020 in Los Angeles.
However, there is some hope. Europe’s demand for ultra-low-sulfur diesel is expected to climb almost 9% between March and July, thanks to summer travel. Also, the French authorities are likely to refill their strategic reserves eventually, having released millions of barrels of petroleum products in response to widespread labour strikes.
