Global Demand Destruction: Subsidies, Empty Gas Stations, Rationing, Flight Cancelations, Export Limits, Price Controls

In the past two weeks we have discussed demand destruction as a result of soaring oil prices (here and here), and we are increasingly seeing anecdotal evidence of just that (here is a table from Goldman we showed previously, laying out where demand destruction is most acute). We start, as always, with Asia which has emerged as ground zero of the global energy crisis - as a reminder last week we first presented a map by JPMorgan's resident commodity expert who how the shockwave from the Iran war spreads across the world, hitting Asia first, then Africa and Europe, before settling on the US, but mostly California.

According to UBS, a shortage of jet fuel in Asia and very high prices for what is available are now leading to greater flight cancellations. European jet fuel trades around $1713/tonne, up 114% since the war began. Singapore fuel is up around 140%.

Both Vietnam Airlines and Air New Zealand have had to cancel flights due to limited fuel supply. Let's go down the list. 1.

Panic buying prompts PM to reassure Australians over fuel supply (bbc) Australia will halve its fuel excise for three months from Wednesday after prices soared to a record last week as the impact of the Iran war spreads.

Meanwhile, the average price of a liter of diesel jumped above A$2.82 last week, while petrol was almost A$2.40, both the highest in at least 20 years. The average price in rural regions like the Northern Territory was even higher, a blow to farmers and long-distance transport firms. The temporary cut would reduce the price of petrol and diesel by about 26 Australian cents ($0.18) per liter, Prime Minister Anthony Albanese said at a press conference Monday in Canberra.

“The longer this war goes on, the worse the impacts will be,” he said. The government will also reduce the heavy road user charge for the next three months, and delay the next planned increased in that charge by six months. The measures are expected to cost about A$2.55 billion and to lower CPI by 0.5 ppt, Treasurer Jim Chalmers said.

Albanese has sought to reassure Australians that the country's fuel supply remains "secure" as prices soar and following reports of panic buying and petrol stations running dry since the start of the Iran war. There have been reports of truck drivers and other motorists stranded, while businesses say rising costs are affecting their viability. The government says demand and distribution issues have caused shortages rather than supply, which it says remains at the same level as before the war began.

In Cairns, Queensland, the BBC found a small independent garage that tells a pretty typical story in Australia. It has run out of unleaded petrol and the price of diesel is 85% higher than it was before the war in Iran started. In New South Wales, Australia's most populous state, one in seven retailers say they are out of at least one type of fuel.

The price of diesel in Sydney has meanwhile risen to the 314.5 cents a litre as of Thursday, according to the National Roads and Motorists' Association (NRMA), its highest ever price. Hundreds of petrol stations across the country have reported running out of at least one type of fuel this week. But shortages are due to people changing their buying habits, NRMA spokesperson Peter Khoury told the BBC. "

People are filling up jerry cans of fuel and storing it in their garages," he said. "

We're hearing increasingly of transport companies telling their drivers that if you're half full and you see diesel, buy it."

2. Japan Says Oil Reserves for Domestic Use Amid Asia Pleas for Aid (bbg) Japan’s trade minister said the country will sell oil from its reserves to domestic refiners as a general rule, signaling that the government isn’t currently planning to channel national supplies directly to other Asian nations seeking assistance. “Regarding the sale of strategic petroleum reserves, we are certainly targeting domestic oil and refining companies,” Trade Minister Ryosei Akazawa said Friday, pointing out that they were legally established to secure Japan’s own energy supplies. “However, the situation may differ somewhat for joint reserves with oil-producing countries. We intend to closely monitor developments and make appropriate decisions on a case-by-case basis.” Other Asian countries are facing similar oil supply challenges. The Philippines and Vietnam have reportedly sought support from Japan, which holds some of the world’s largest oil reserves. In addition to its own reserves, Japan also has reserves held with oil producing nations like Saudi Arabia, the United Arab Emirates and Kuwait. Akazawa said he is well aware of the Philippines’ dire situation, noting that its reserves are far smaller than Japan’s while it relies heavily on the strait to secure oil, as Japan does. 3. Japan to relax rules from April to boost coal-fired power amid LNG import risks Japan's industry ministry will relax ‌rules for one year to increase the use of coal-fired power plants in the fiscal year starting April, as the U.S.-Israel war with Iran adds uncertainty to liquefied natural gas imports, it said on Friday. Japan takes delivery of some 4 million ​metric tons of LNG annually - or around 6% of its total imports - via the Strait of ​Hormuz, which has been effectively closed due to the war. "

There is increasing uncertainty about ⁠future LNG procurement. We believe that it is necessary to increase the operation of coal-fired power plants and ​save LNG fuel," an industry ministry official told a special government panel. The Ministry of Economy, Trade and Industry ​proposed suspending for one year its 50% cap on the capacity utilisation rate of coal-fired power plants with generation efficiency below 42%.

LNG consumption could then fall by about 0.5 million tons a year, or slightly more than 10% of the LNG it imports ​via the Strait of Hormuz, according to a METI's estimate. The ministry will implement the change from April 1 ​as an emergency measure and there were no objections from the panel members, the official told Reuters. Japan has an LNG stockpile of around 4 million tons, METI data showed.

Its thermal power generation largely depends on LNG and coal, with a small portion covered by oil, with electricity also being generated from nuclear power and renewable energy. So far, Japan has restarted ​15 nuclear power reactors of ​33 which remain operable ⁠after the Fukushima Daiichi disaster in 2011. 4.

India Slaps Taxes on Fuel Exports as Iran War Jolts Supply (bbg) India has announced a series of tax changes including a levy on fuel exports, as the country tries to shield consumers from the impact of a deepening conflict in the Middle East that has upended energy supply. The South Asian nation imposed a 21.5 rupee (23 cents) per liter duty on exports of diesel and 29.5 rupees on jet fuel, Finance Minister Nirmala Sitharaman said in a post on X. “This will ensure adequate availability of these products for domestic consumption,” she said. India has also slashed taxes on locally sold gasoline and diesel by 10 rupees per liter each, a reduction intended to help keep prices stable at the pump.