Slowing Global Jet Fuel Consumption Fuels Concerns Over Oil Demand

Global jet fuel demand is expected to weaken as consumer spending declines, potentially affecting oil prices in the coming months. Despite hopes for a strong recovery driven by increased travel post-pandemic, global oil demand in the first half of 2024 has fallen short, primarily due to lower-than-expected consumption in the US and China, the world’s largest oil markets.

Jet Fuel Demand and Economic Indicators

Jet fuel, accounting for about 7% of global oil demand, was anticipated to be a significant growth driver this year. However, global jet fuel demand averaged approximately 7.49 million barrels per day (bpd) through July, marking a nearly 500,000 bpd increase from the same period last year. Goldman Sachs projected a growth of 600,000 bpd for the year, but current estimates indicate demand growth from August through October at only about 400,000 bpd.

Impact of Consumer Spending and Travel

Major US airline operators and travel companies have expressed concerns over slowing consumer spending as disposable incomes shrink, impacting leisure travel. US consumer spending growth averaged just 0.3% in the three months through June, the slowest increase in over a year.

The International Energy Agency (IEA) noted limited prospects for further gains in US jet fuel demand, traditionally the most macro-driven product category, due to a cooling economy. US jet fuel consumption fell from a post-pandemic high of 1.95 million bpd in early August to just 1.6 million bpd last week.

Global Trade and Air Freight

Weaker economic activity could exacerbate the slowdown in global trade, reducing air freight demand. Analysts from Bank of America pointed out that global trade has been slowing as demand in the US and Europe shifts from goods to services.

Adjustments in Oil Demand Forecasts

This week, the Organization of the Petroleum Exporting Countries (OPEC) reduced its 2024 oil demand forecast for the first time since July 2023, while the IEA lowered its 2025 estimate. Both organizations cited weaker-than-expected economic growth in China and other regions.

Technology and Consumer Behavior Changes

Long-term factors, such as advancements in technology and shifts in consumer behavior, are also impacting jet fuel consumption. Improved efficiency and mileage in newer aircraft allow airlines to transport more passengers over longer distances while using less fuel. Rystad analyst Wei Ran Gan noted that the average fuel economy of US commercial carriers increased to 65.5 seat miles per gallon in 2023, up from 64.9 in 2019.

Changes in consumer preferences for shorter domestic flights over international travel have further affected demand. Additionally, trade tensions between the US and China have reduced air traffic between the countries to a quarter of what it was five years ago. International travel out of Russia has also declined by 40% from 2019 levels due to border restrictions following the invasion of Ukraine.

Future Outlook

Despite expectations for continued growth in jet fuel demand, analysts suggest that these issues and improvements in mileage could lead to adjustments in their oil demand and price forecasts for the year.