Vortexa import indicators suggest trend reversal in fuel demand

Vortexa import indicators suggest trend reversal in fuel demand

The last couple of months broke a persistent trend of slowing fuel imports into main consumption hubs, heralding a potential trend change in pricing patterns and giving some hope to crude sellers.

16 May, 2024
David Wech
David Wech, Chief Economist

Market participants love to look at the latest data, e.g. last week’s trend. But for seaborne oil flows, this makes little sense as the logistical units (vessels) are very big, so that the question whether a vessel departed or arrived on a Sunday or Monday makes a huge difference for the weekly figure. But one month’s high or low levels does not make for a trend. For that we would tend to argue that it needs three months in a row.

Being ahead of the curve

We believe monthly data over a couple of months can be a leading indicator. With 2024 starting with a lot of optimism on global oil demand growth. We have often been perceived as spoilers when we told our clients about a persistent slowdown in motor fuel and naphtha imports. This trend emerged some time in Q2 2023, and persisted largely into January and February this year. And finally the overall market sentiment has really soured over the last couple of week’s with the IEA continuing downward revisions in its 2024 oil demand growth to just about 1mbd, citing disappointing Q1 observations. But interestingly enough, our import demand indicators are showing a clear trend reversal over the last couple of months, with the seasonally adjusted indices for all for products being significantly higher over the last 2-3 months than in the preceding 5 months or so (see chart below).

Arrivals into Top-100 global import ports by main products (seasonal index, 100  = 2016-23 average of any given month, 3-month moving average; links for diesel, gasoline, jet/kero, naphtha)

Before exploring further what this may mean, let’s look at some crucial characteristics of our import demand indicators. To start with, we look only at ports – the 100 biggest ones – where at least 90% of the over in-and-outflows are imports. Therefore, we disregard trading hubs such as Rotterdam and Singapore and focus on those ports where imports are closely linked to the oil consumption in the hinterland (rather than potentially reflecting trading, blending and storage plays). Also we include all inflows irrespective of their origin, taking intra-country flows in the United States, China, France and other places into consideration. In difference to national statistics, we can look at these developments in a complete manner in close to real time, giving a time advantage of typically two and often more months. (On top of that valuable guidance for future arrivals can be derived from our data as we provide a call on the ultimate destination of every single vessel in transit.) Finally, the data reflects countries all across the globe, as very close to 100% of worldwide seaborne trade are reflected, which is otherwise very cumbersome to compile.

How meaningful is the jump in imports?

It is very evident that ample supplies have priced themselves into the market over the last couple of months. Global liftings of gasoline/blending components, naphtha, jet/kero and diesel/gasoil have all surged far above the seasonal range in March, nearly matching the Dec 2022 all-time high (see chart below). The Middle East, empowered by the successful start-up of grassroots refineries in Kuwait and Oman, was instrumental, but also South and Northeast Asia, as well as the US ramped up supplies in this period. Some of these barrels, especially on the East/West route along the Cape of Good Hope, are still hitting the shores, weighing on cracks and refinery margins.

Global liftings of main clean products (mbd, includes gasoline, naphtha, jet/kero, diesel)

However, exports have only been really high for one month, with April levels are significantly lower before another rebound in May. The upwards trend in imports is more persistent, and it does have significant meaning, as it is occurring in the import ports and not only in trading hubs. Generally, we are still just at the beginning of the seasonal upside in travel in the Northern Hemisphere. Oil demand is surely more and more exhibiting a pattern of one seasonal peak in the summer, as the historical second peak in winter is eaten up by substituting heating fuels with alternatives amid steady global warming. While power, cheap LPG and LNG, and other energy sources are taking away demand in many sectors such as industry, residential, or agriculture, aviation is still 99+% petroleum fueled. And while batteries are making their inroads into road transport, their share in propulsion is likely to be the lowest in long summer vacation trips.

So while the overall picture is still mixed, there is at least a chance that prices (both cracks and outright) may have found the low point, and the coming weeks and months may be more constructive, especially if refinery run cuts and potential outages tighten the supply side somewhat. Any upside in product demand would also be welcome news for crude sellers, with recent stockbuilds likely to incentivise OPEC+ to roll over cuts at the start of June.

David Wech
Chief Economist
David Wech
David Wech is contributing his extensive experience in research operations across strategy execution, product development, supply and demand modelling, competitive market positioning, commodity analysis and price forecasting. Before joining Vortexa, he spent 18 years at JBC Energy, including 8 years as Managing Director and 7 years as the Head of Research.