In a report sent to Rigzone recently by Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, analysts at J.P. Morgan, including Kaneva, revealed that they were tracking increasing monthly global oil demand losses.
“Globally, we track demand losses of 2.8 million barrels per day in March, 4.3 million barrels per day in April, and 5.6 million barrels per day in May, while acknowledging extremely limited visibility in parts of Africa and Southeast Asia,” the analysts noted in the report.
“Roughly 40-60 percent of the decline reflects weaker petrochemical feedstock demand, with the remainder coming from transport fuels,” they added.
They went on to state, however, that, “even so, the broader impact on global economic activity has been relatively contained”.
“Our economists have trimmed global growth by only about 24 basis points in 2026, while raising inflation by around 100 basis points,” they highlighted.
In the report, the J.P. Morgan analysts outlined that oil demand in China may have dropped by 1.5 million barrels per day “with remarkably little visible disruption”.
“We spent last week in China, and the most striking takeaway from our meetings was not simply that oil demand has fallen, it was that it may have dropped by as much as nine percent, or 1.5 million barrels per day, abruptly, unexpectedly, and with remarkably little visible disruption,” the analysts said in the report.
“The sharpest hit has been in petrochemicals, but the weakness has spread to transportation fuels like gasoline and diesel. The decline does not appear to be the product of a formal government conservation campaign. There were no conspicuous appeals to save energy, no major limits on mobility, and no sense of crisis in daily life,” they added.
“Instead, it looks like consumers have made a quiet economic choice. Faced with higher gasoline, diesel and airfare, many seem to have shifted away from oil-based transportation toward cheaper, lower-carbon alternatives: electric buses, gas-powered trucks, subways, electrified high-speed rail, and electric taxis,” they continued.
The analysts stated in the report that feedback from Europe tells a similar story.
“Unlike 2022, when the energy shock registered as an acute macroeconomic crisis, this oil shock has, so far, felt oddly more manageable, even as it marks the largest disruption to oil markets on record,” they said.
“Even with oil prices nearing $120 a barrel in April and May, electricity prices across most European countries continued to slip into negative territory, pushed down by massive surges in solar and wind generation,” they added.
The J.P. Morgan analysts went on highlight in the report that developments in China and Europe “raise a larger set of questions”.
“How much of today’s demand weakness is likely to reverse once conditions normalize, and how much reflects a more durable shift in consumption?,” the analysts asked in the report.
“Put differently, could the world actually function with something like nine percent less oil?,” they added.
The answer is nuanced, according to the analysts, who warned in the report that a decline of that magnitude would typically read as recessionary, “especially when set against the Global Financial Crisis, when the world’s oil demand fell by only about two percent at its trough”.
The analysts added, however, that “if a meaningful share of the reduction comes from substitution rather than forgone activity, the macro signal is materially different”.
Supply Shock
In the report, the J.P. Morgan analysts noted that, “despite the relative calm in broader markets, the physical supply shock itself has been immense”.
“Supply losses linked to the closure of the Strait of Hormuz were severe and intensified further after the U.S. blockade effectively halted Iranian oil exports,” they said.
“As a closed-loop system that must clear daily, the oil market can only adjust through some combination of inventory draws and demand loss,” they continued.
Supply to the market fell by roughly 12.6 million barrels per day in March, 14.1 million barrels per day in April, and 16.4 million barrels per day in May, according to the report, which outlined that these losses were offset through a mix of inventory draws and demand declines.
Inventory draws came in at around three million barrels per day in March, 6.5 million barrels per day in April, and 7.4 million barrels per day in May, the analysts highlighted in the report. Demand declines stood at roughly 2.8 million barrels per day in March, 4.3 million barrels per day in April, and 5.6 million barrels per day in May, the analysts reemphasized in the report.
The J.P. Morgan analysts went on to highlight that lessons from an “oil shock” in 1973 “are instructive precisely because the world today looks fundamentally different from the one that entered the first oil embargo”.
“In 1973, oil was deeply embedded across nearly every part of the global economy: electricity generation was heavily oil-dependent, vehicle efficiency was poor, public transportation infrastructure was limited, and large-scale alternatives barely existed,” the analysts pointed out.
“The result was a severe macroeconomic shock that triggered recession, inflation, industrial weakness, and a lasting restructuring of global energy systems,” they added.
The analysts noted in the report that much of the modern energy system was built in direct response to those vulnerabilities.
“In the U.S., the crisis led to the creation of the Strategic Petroleum Reserve, the establishment of the Department of Energy, the introduction of fuel economy standards, and even the national 55 mile per hour speed limit aimed at reducing gasoline consumption,” the analysts said.
“Across Europe and Japan, governments accelerated the buildout of nuclear power, expanded public transportation systems, improved building insulation standards, and diversified away from oil in electricity generation,” they added.
“The crisis also reshaped industrial processes, encouraged smaller and more fuel-efficient vehicles, and ultimately reduced the share of oil in the global energy mix over the following decades,” they continued.
“This raises the key question for today: should we expect structural changes of similar magnitude from the current shock?,” the analysts went on to ask in the report.
Responding to that question, the J.P. Morgan analysts said, “possibly yes”, but added that the direction of change may be different.
“The 1973 crisis pushed economies to use energy more efficiently,” they said.
“Two major wars involving large oil producers over the past five years could accelerate something broader: the steady decoupling of economic activity from oil consumption itself,” they warned.
High-Frequency Data
In an analysis sent to Rigzone on May 28, analysts at Energy Aspects outlined that the company’s “high-frequency data” showed “limited consumer demand response to higher oil prices”.
The analysts noted in the analysis piece that strong backwardation over the past few weeks and destocking was exaggerating fears of demand destruction.
“Energy Aspects’ high-frequency indicators, including our proprietary trucking indices and data produced by our colleagues at Kayrros, offer a timely read on how end-user consumption is responding to higher oil prices,” the analysts said in the analysis piece.
“One of the most recurring themes in recent discussions with clients has been the status of downstream oil product demand. Physical players all note lackluster demand in April and May, questioning the health of end-user consumption,” they added.
“These high-frequency indicators have shown little clear evidence of a meaningful reduction in end-user demand. Instead, what physical players are experiencing as poor demand, appears to be destocking by wholesalers in response to extreme backwardation in forward prices,” they continued.
The analysts said in the analysis that trucking activity in the U.S. and Europe remains close to seasonal norms, and that jet demand outside the Middle East and China has “held up well”, adding that U.S. gasoline demand “shows no clear sign of weakness”.
“Once the rampant destocking in oil product markets in March and April is digested by the system, still-healthy end user consumption will translate into more demand,” the analysts said in the piece.
They went on to warn, however, that demand will not remain immune to elevated prices indefinitely and said obvious downside risks remain.
“Airlines could further trim schedules and consolidate flights if ticket sales soften, the U.S. is entering the more price-sensitive summer driving season, and hauliers cannot absorb elevated prices forever,” they warned.
“But without another leg up in prices, any demand decline is likely to be slow and drawn out, risking tighter product balances,” they added.
“High-frequency data will therefore be critical in identifying turning points in downstream consumption over the coming months,” they continued.
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