Slower consumption hurts global demand for jet fuel; oil prices likely to fall

Global demand for aviation turbine fuel (ATF), or jet fuel, is expected to ease as the slowdown in consumer spending impacts people’s travel budgets. A change in the pattern could affect oil prices in the coming months, Reuters reported on Wednesday, August 14.

Global oil demand barely met expectations in the first half of the year due to weaker consumption data from the USA and China, the two most important oil markets.

Jet fuel accounts for 7 percent of global oil demand and is expected to drive demand growth this year as travel continues to recover from the COVID-19 pandemic.

Global jet fuel demand rose 500,000 barrels per day (bpd) year-on-year to nearly 7.49 million bpd in July 2024, according to the Goldman Sachs report.

Oil demand will need to rise faster in the coming months to meet Goldman’s 600,000 bpd growth forecast for the current year, and the report says signs of a slowdown make the likelihood of those estimates appear slim.

U.S. airlines and travel companies have expressed concern about a decline in consumer spending as disposable income falls, which is likely to impact leisure travel.

Average U.S. consumer spending rose 0.3 percent in the three months through June, the slowest increase in over a year.

“We see limited scope for further gains in (US) jet fuel, traditionally the most macroeconomically driven product category, as a slowing economy weighs on demand for air travel,” the report quoted the International Energy Agency (IEA) as saying.

Weaker economic activity could worsen the slowdown in global trade and reduce demand for air cargo, a Bank of America analyst told Reuters. The analyst further noted that global trade has experienced a slowdown in recent years as demand in the US and Europe has shifted from goods to services.

The Organization of the Petroleum Exporting Countries (OPEC) has lowered its oil demand forecast for the first time since July 2023. At the same time, the IEA cut its estimates for 2025, citing weaker-than-expected economic growth in China and elsewhere as one reason for the reduction.

Microsoft’s Crowdstrike outage shut down several airlines for several days in July, which also affected demand for jet fuel. US jet fuel consumption fell by 10,000 bpd in July compared to the same period last year, according to the IEA.

“In summary, macroeconomic conditions for transportation fuels are deteriorating quite rapidly,” Bank of America analysts said, adding: “Against this backdrop, we expect overall demand for jet fuel to remain weak.”

Long-term effects of the decline in demand:

Changing consumer behavior and improved aviation technologies are also expected to impact consumption.

The improved efficiency and range of the new aircraft are designed to carry more passengers over longer distances while using less fuel, Wei Ran Gan, an analyst at Rystad, told the news agency.

Fuel consumption by U.S. aircraft operators increased to 65.5 seat miles per gallon in 2023, compared to 64.9 seat miles per gallon in 2019, according to the report. This is a metric used to measure airline capacity.

Following the pandemic, a shift in consumer preference toward shorter flights compared to international travel has impacted demand, said the Bank of America analyst cited above.

The trade wars between the US and China have reduced air traffic between the countries to a quarter of the level of five years ago, said the Goldman Sachs analyst.

Travel from Russia has fallen by 40 percent compared to 2019 and the borders have been closed to Russian passengers since the country’s attack on Ukraine, the report said.

The two routes would have contributed 80,000 barrels per day to jet fuel demand.

Analysts cited in the report expect demand for jet fuel to continue to rise, but warn of a slowdown due to problems and technological improvements, which threatens the oil demand and oil price forecast for the year.