"Diesel, the 'Fuel of the Economy,' Reverses Course... Deepening Recession Fears"

Diesel prices, which surged after the Russia-Ukraine war, are declining. As diesel prices, a leading indicator of the economy, fall, the risk of a global economic downturn is deepening.

On the 16th (local time), Bloomberg reported that the diesel market, which drives the global economy, is sending signals of a recession. The decline in demand for diesel, widely used in freight transport, construction, and agriculture, is considered an early sign of economic slowdown, including weakened industrial activity and reduced consumption. Devnil Choudhary, Vice President for the Americas at S&P Global, warned, "We are assuming the worst economic conditions since the 2008 global financial crisis and the 2020 COVID-19 pandemic."

European diesel futures prices (December delivery) fell about 5% from $776 per ton at the beginning of this year (as of the 3rd) to $737 on the 4th. Compared to last year's peak ($906 on June 9), it has dropped nearly 19%. Diesel prices, which surged due to the Russia-Ukraine war, are declining more steeply than gasoline prices.

[Image source=AFP Yonhap News]

The deterioration in diesel demand is led by the United States and China, which account for 40% of the global economy. Since 60-70% of diesel demand in the US and China is consumed by freight transport, this is interpreted as evidence that the two pillars of the US and Chinese economies?exports and consumption?are significantly shaken.

The volume of imported cargo at the Port of Los Angeles (LA), the largest port in the US West Coast, has dropped to its lowest level since the COVID-19 pandemic began in March 2020. As cargo volume decreased, truck and rail transport, which use diesel as fuel, also sharply declined. According to the Association of American Railroads, during the first 12 weeks of this year, major railroads across the US saw container freight shipments drop by about 10% compared to the same period last year.

In China, the world's factory, truck movements carrying goods have also noticeably decreased. According to the Chinese Ministry of Transport, container throughput at major ports, including Shanghai Port, China's largest container port, fell by 5% during the week of March 3-9 compared to the same period last year.

FGE, an energy consulting firm based in London, warned that diesel demand in China in the second half of this year has more downside potential than upside, stating, "Due to worsening economic conditions in the US and Europe, Chinese manufacturing must rely solely on domestic consumption."

S&P Global forecasts that diesel demand in the US will decrease by about 2% this year. This decline is the largest in seven years since 2016. The decrease in diesel demand is particularly noticeable in the US West Coast, where the largest US ports are located, with S&P Global projecting that the decline in diesel demand in the West Coast region will reach 5%, more than double the national average.

The downward trend in diesel demand is expected to continue in the second half of this year. Bloomberg diagnosed that inflation remains unstable, and with high-intensity tightening and lack of economic stimulus measures, household and corporate activities are contracting, putting downward pressure on diesel demand at least through the third quarter of this year. Craig Fuller, CEO of FreightWaves, a global freight transport information company, said, "Due to high-intensity tightening and the absence of government stimulus measures, the path to diesel demand recovery is far away."

This content was produced with the assistance of AI translation services.