The global demand for jet fuel, which has been a key driver of oil consumption, is beginning to show signs of strain as economic challenges and technological advancements reshape the landscape. With a noticeable slowdown in consumer spending and shifts in travel behavior, the outlook for jet fuel demand appears less robust than anticipated.
Despite early expectations that jet fuel would be a pillar of growth this year, Goldman Sachs data indicates that global jet fuel demand averaged about 7.49 million barrels per day (bpd) through July, marking a 500,000-bpd increase over the same period last year. However, this growth falls short of the bank's forecast of a 600,000 bpd increase for the year, raising concerns about meeting year-end targets.
Economic headwinds are a significant factor in this shift. Major U.S. airlines and travel companies have expressed concerns over shrinking disposable incomes and slowing consumer spending, which are likely to dampen leisure travel. U.S. consumer spending growth has averaged just 0.3% in the three months through June, the slowest pace in over a year. The International Energy Agency (IEA) echoed these concerns, stating, "We see limited scope for further gains for (U.S.) jet fuel, traditionally the most macro-driven product category, as a cooling economy weighs on demand for air travel."
Additionally, a global slowdown in trade, exacerbated by weaker economic activity, has led to a reduction in air freight demand. Bank of America analysts pointed out that global trade has been shifting from goods to services, further impacting the need for jet fuel.
Technological advancements and changing consumer behaviors are also influencing jet fuel consumption. Improved fuel efficiency in newer aircraft allows airlines to carry more passengers over longer distances while burning less fuel. Rystad analyst Wei Ran Gan noted that the average fuel economy of U.S. commercial carriers increased to 65.5 seat miles per gallon in 2023, up from 64.9 in 2019.
Moreover, a post-pandemic preference for shorter domestic flights over international travel has also contributed to the softening demand. Years of trade tensions between the U.S. and China have slashed air traffic between the two nations to a quarter of what it was five years ago, according to Goldman Sachs analysts. Similarly, international travel out of Russia has dropped 40% from 2019 levels due to border closures following the invasion of Ukraine.
These factors combined suggest that while jet fuel demand may continue to grow, the pace of that growth is under pressure. Analysts warn that these challenges, coupled with ongoing improvements in mileage, could pose risks to oil demand and price forecasts for the year.
(Source:www.usnews.com)
Despite early expectations that jet fuel would be a pillar of growth this year, Goldman Sachs data indicates that global jet fuel demand averaged about 7.49 million barrels per day (bpd) through July, marking a 500,000-bpd increase over the same period last year. However, this growth falls short of the bank's forecast of a 600,000 bpd increase for the year, raising concerns about meeting year-end targets.
Economic headwinds are a significant factor in this shift. Major U.S. airlines and travel companies have expressed concerns over shrinking disposable incomes and slowing consumer spending, which are likely to dampen leisure travel. U.S. consumer spending growth has averaged just 0.3% in the three months through June, the slowest pace in over a year. The International Energy Agency (IEA) echoed these concerns, stating, "We see limited scope for further gains for (U.S.) jet fuel, traditionally the most macro-driven product category, as a cooling economy weighs on demand for air travel."
Additionally, a global slowdown in trade, exacerbated by weaker economic activity, has led to a reduction in air freight demand. Bank of America analysts pointed out that global trade has been shifting from goods to services, further impacting the need for jet fuel.
Technological advancements and changing consumer behaviors are also influencing jet fuel consumption. Improved fuel efficiency in newer aircraft allows airlines to carry more passengers over longer distances while burning less fuel. Rystad analyst Wei Ran Gan noted that the average fuel economy of U.S. commercial carriers increased to 65.5 seat miles per gallon in 2023, up from 64.9 in 2019.
Moreover, a post-pandemic preference for shorter domestic flights over international travel has also contributed to the softening demand. Years of trade tensions between the U.S. and China have slashed air traffic between the two nations to a quarter of what it was five years ago, according to Goldman Sachs analysts. Similarly, international travel out of Russia has dropped 40% from 2019 levels due to border closures following the invasion of Ukraine.
These factors combined suggest that while jet fuel demand may continue to grow, the pace of that growth is under pressure. Analysts warn that these challenges, coupled with ongoing improvements in mileage, could pose risks to oil demand and price forecasts for the year.
(Source:www.usnews.com)