Fuel that powers the global economy flashes recession signs

In China, the number of trucks running on highways is noticeably down in recent weeks. In Europe, diesel’s premium to crude futures recently plunged to the lowest level in more than a year. In the US, demand is on track to contract 2% in 2023, S&P Global Inc. says. Excluding 2020, when much of the economy briefly came to a standstill, that 2% slump would be the biggest drop in America’s diesel use since 2016. 

 

We are “assuming one of the worst economic climates in recent memory outside of the 2008-2009 financial crisis and the pandemic," said Debnil Chowdhury, S&P’s head of Americas fuels and refining. 

No matter how you crunch it, demand for the heavy-machinery fuel that powers everything from commercial trucking fleets to construction equipment is weakening in many of the world’s largest economies. Viewed as an early signal of weaker industrial activity and reduced consumer spending, the pullback has recession-watchers on high alert.

“Diesel demand can act as a leading indicator for broader growth as an early sign that spending by households is waning," said Ben Ayers, a senior economist in the US with Nationwide Economics. “An expected drop in diesel demand fits with building recession risks across the economy."

Once the world’s hottest fuel after Russia’s invasion of Ukraine disrupted trade flows, diesel prices have been coming down amid concerns many of the world’s biggest economies have bumpy roads ahead. Economists say there’s a 65% chance of a US recession and a 49% chance of a European one within the next year. In China, the risk is lower but the country’s recovery from its formerly harsh Covid-19 restrictions will still require a marked improvement in consumer confidence, and fast.