Global jet fuel demand is expected to weaken as a slowdown in consumer spending begins to impact travel budgets, potentially leading to lower oil prices in the near future. The first half of 2024 has already seen global oil demand fall short of expectations, largely due to weaker-than-expected consumption in the United States and China, the two largest oil markets.
Jet fuel, which constitutes approximately 7% of global oil demand, was anticipated to drive significant growth this year as travel continued its recovery from the pandemic. However, global jet fuel demand averaged 7.49 million barrels per day (bpd) through July, showing an increase of nearly 500,000 bpd compared to the same period last year. Despite this growth, it remains insufficient to meet the forecasted annual growth of 600,000 bpd, with estimates for August through October pointing to a slower increase of around 400,000 bpd.
The cooling of consumer spending, particularly in the U.S., is a primary concern for major airline operators and travel companies. U.S. consumer spending growth has slowed to just 0.3% in the three months through June, the weakest increase in over a year. This slowdown is reflected in a sharp drop in U.S. jet fuel demand, which fell from a post-pandemic high of 1.95 million bpd in early August to just 1.6 million bpd by mid-August. The International Energy Agency (IEA) has noted that the economic cooling will likely continue to weigh on air travel demand, further limiting the potential for gains in global jet fuel demand.
Additionally, weaker economic activity could exacerbate a slowdown in global trade, further reducing air freight demand. Analysts from Bank of America have highlighted that global trade has been shifting from goods to services, contributing to the overall reduction in fuel demand. This shift, combined with other factors such as a global tech outage that temporarily grounded flights in July, has contributed to the decline in jet fuel consumption. The Organization of the Petroleum Exporting Countries (OPEC) and the IEA have both revised their oil demand forecasts downward, citing weaker-than-expected economic growth in China and other regions.
Longer-term factors are also playing a role in the softening of global jet fuel demand. Advances in aircraft technology have led to improved fuel efficiency, allowing airlines to carry more passengers over longer distances while consuming less fuel. The average fuel economy of U.S. commercial carriers, for example, has increased from 64.9 seat miles per gallon in 2019 to 65.5 in 2023. Additionally, a post-pandemic preference for shorter domestic flights over international travel has further dampened demand. Trade tensions between the U.S. and China, along with reduced international travel from Russia, have also significantly impacted global air traffic.
While global jet fuel demand is still expected to grow, the combined effects of these economic and technological factors may lead to adjustments in forecasts for both oil demand and prices as the year progresses.