Piousbox

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 (reuters)

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. 

As the third-largest oil consumer, India is among the countries most impacted by the war in the Persian Gulf and the closure of the Strait of Hormuz, which connects the region with the wider world. It has seen acute shortages of liquefied petroleum gas, used for cooking, and of liquefied natural gas. The country raised LPG prices earlier this month and subsequent speculation around a likely increase in pump prices of diesel and gasoline has led to panic buying, with people lining up outside forecourts.

The energy crunch comes at a delicate time for a price-sensitive country, with elections in key states where Prime Minister Narendra Modi’s Bharatiya Janata Party is looking to expand its foothold. Opposition parties have been pressing for more forceful measures to address the fuel crunch. Madhavi Arora, an economist at Emkay Global Financial Services, estimates the government’s annualized revenue loss from tax cuts at about 1.55 trillion rupees ($16.4 billion). 

Diesel and jet fuel together form a significant portion of India’s refined product exports. Last month, India supplied around 500,000 barrels a day of the two products combined, out of the roughly 1.2 million barrels a day of fuels exported, tanker trading data from intelligence firms Vortexa and Kpler showed. 

The government will lose 70 billion rupees every fortnight due to the excise duty cut, Vivek Chaturvedi, chairman of the Central Board of Indirect Taxes and Customs, told reporters at the daily government briefing on the situation. However, it expects to collect about 15 billion rupees over the same period from export taxes levied on jet fuel and diesel, he said. 

5. Thailand Tightens Fuel Pricing, Supply Disclosure Amid Shortages (bbg)

Thailand is tightening oversight of fuel pricing and supply as authorities ramp up efforts to address shortages across parts of the country. Refineries must display selling prices at their sites along with current inventory levels, under new directives outlined by the Energy Ministry late Thursday. Traders are required to adhere to declared prices and cannot charge above government-set levels, it said.

The Southeast Asian country has faced fuel shortages in several provinces as the Middle East conflict drives up global oil prices, widening the gap between subsidized domestic rates and international markets. Fears of tighter supplies have sparked panic buying, particularly of diesel, despite government assurances that stocks can last about 100 days. While authorities have taken steps to shore up supplies to retail outlets, many pumps have had to ration fuel as agriculture and industrial users queued up with jerry cans along with commuters to buy diesel.

Diesel demand has jumped to about 87 million liters per day from an average 67 million liters before the start of the conflict, according to the ministry. The government has already raised retail prices to ease pressure on subsidies. However, even after Thursday’s increase, it is still subsidizing diesel at 19 baht (58 US cents) per liter, pushing the oil subsidy fund’s deficit to about 38 billion baht, acting Energy Minister Auttapol Rerkpiboon said.

6. Vietnamese Airlines Slash Flights From April on Jet Fuel Crunch (bbg)

Vietnamese airlines will significantly reduce flights and scale back operations from April as soaring jet fuel prices and supply constraints squeeze the industry, prompting carriers to focus on core routes as the Middle East conflict drags on. Vietnam Airlines, the national carrier, will suspend seven domestic routes from April 1, according to a document from the Civil Aviation Authority of Vietnam. The airline plans to cut 10-20% of its flights per month in the next quarter if jet fuel reaches $160-$200 per barrel, the document said. That could mean up to 18% of its international flights being canceled and up to 26% on domestic routes.

Low-cost carrier Vietjet Air is targeting an 18% reduction in total capacity in April, including a 22% cut in domestic flights and an 11% reduction in international routes, the document said. Bamboo Airways passengers are expected to see the biggest disruption in April, with flights halved to 15–17 per day.

Vietnam has moved to shore up energy security after severe disruptions to oil and gas flows through the Strait of Hormuz, prompting the government to tap its emergency fuel fund to stabilize prices. The country’s two domestic refineries meet around 70% of its domestic demand, but more than 80% of its crude imports come from Middle East. 

The government announced on Friday it will temporarily freeze some taxes on gasoline, oil and jet fuel until April 15 as an ‘urgent’ move to stabilize the domestic market and ensure national security due to the ongoing conflict

7. Asia employs energy price control and subsidies  (WoodMac)

Asian governments have rapidly deployed an unprecedented array of cushions to protect the hardest-hit sectors and consumers. But such interventions come at a staggering cost and, if oil prices remain high, some Asian governments will soon hit fiscal breaking point. 

Asian countries are trying to prevent a repeat of the 2022 cost-of-living crisis. Beyond demand-side management, Asian governments have shifted from market pricing for oil products to aggressive intervention. A plethora of policy responses are being rolled out across the region. Most, though, amount to pretty much the same thing – subsidies for consumers.

Price caps at the pump are the go-to lever, with governments compensating losses through a variety of mechanisms. In Indonesia, losses by national oil company (NOC) Pertamina will be recovered by government compensation later; Japan and Malysia have a similar scheme for their refiners and fuel suppliers. In Thailand and Vietnam, oil company losses are currently made good from dedicated funds – though the longevity of these funds is already being tested. China, meanwhile, has a US$130/bbl crude price ‘cap’ on refined product prices that refiners can pass through to customers. Perhaps in anticipation of higher prices, China introduced subsidies on diesel and gasoline this week despite the cap not being breached.

India has a twist on the theme. The government moved fast to freeze retail prices but the state-owned oil marketing companies initially have to absorb the losses. Once these become unsustainable, the central government intervenes by cutting taxes, essentially sacrificing tax revenue to keep the pump price stable.

The affordability of current subsidy schemes varies greatly by country. Thailand and Vietnam have tapped into budget rainy-day funds to make subsidy payments. But Thailand’s fund is already in deficit, while Vietnam’s will be fully drawn by early April under the current subsidy scale. Expanded fiscal deficits look near-certain through 2026 across much of Asia. If Brent averages US$100/bbl for four months, India is hit hardest among Asia’s major economies: we estimate a cost equivalent to 0.7% of GDP and 7.2% of government revenue in fiscal year 2025-26. Indonesia is in danger of breaching its legal limit of 3% on its fiscal deficit if subsidy payments persist

On to Africa...

8. Kenya Plans to Stabilize Fuel Price as Outages Hit Some Stations (bbg)

Kenya plans to stabilize fuel prices as some stations run out of supply in the East African nation that typically depends on Middle East imports to meet demand. Vitol Group’s Vivo Energy, the biggest retailer in the country, said Thursday in a post on X that increased fuel demand resulted in temporary outages at some of its outlets. Kenya’s Treasury Secretary John Mbadi the same day outlined initial measures to be taken by the government to keep petrol and diesel prices from surging.

Kenya will utilize its petroleum development levy to cap pump prices, though a lengthy war could become an emergency, Mbadi told lawmakers in the capital, Nairobi. “It is my hope that we will not see this war prolonged for another month or so.”

Many African economies, particularly in East and Southern Africa where the Middle East is a major exporter, are running on weeks of stored refined products as the Iran war chokes shipments through the Strait of Hormuz. Governments have this week sought to reassure residents that there are sufficient stocks and asked them not to hoard fuel.

Kenya’s outlying gas stations have been the first to dry up as major oil companies are holding back from wholesaling product that would normally be distributed, according to a lobby group of independent operators.

“Rural stations are the worst hit — we can’t get product at competitive prices,” said Martin Chomba, chairman of the Petroleum Outlets Association of Kenya. About 68% of Kenya’s 6,200 gas stations are non-franchised and a “substantial number are not able to access products,” he said.

... and Europe

9. Czechs May Cap Fuel Margins as Premier Slams Retail Prices (bbg)

The Czech government said it’s considering regulating retail margins at gas stations after Prime Minister Andrej Babis criticized the two largest fuel distributors in the country for what he called “outrageous” prices at the pumps. Local media have reported that cost of petrol and diesel in the Czech Republic has shown one of the biggest jumps in the European Union since the outbreak of the war in Iran. While several nations in central and eastern Europe have adopted measures to ease the impact of surging oil on households and businesses, the Czech government rejected opposition proposals to lower excise taxes because of the impact on budget deficit.

“Instead, we are prepared to do something actually effective, and that is for instance regulating margins at the pumps,” Finance Minister Alena Schillerova said in a post on X Friday. “This option and other steps will be the main topic at the government meeting on Monday.”

The premier, a chemicals and agriculture billionaire who returned to power last year, urged Poland’s Orlen SA and Hungary’s Mol Nyrt to lower their prices immediately. “I’m asking you not to abuse the current situation in supply of fuels caused by the Iran crisis,” Babis said in a video on his Facebook account. 

Officials in Prague previously stated they wouldn’t cut fuel taxes to ease the hit from energy shock, saying such a move wouldn’t guarantee lower retail prices. Orlen Unipetrol, the Czech unit of the Polish group, is operating in line with the law and its prices are set by the market, the CTK newswire reported, citing spokesman Pavel Kaidl. A spokesman for Mol’s Czech unit told the Seznamzpravy news website that fuel prices are determined mainly by oil prices on international markets, while taxes also have a significant influence. 

10. Poland Plans Fuel Tax Cuts to Shield Consumers From High Prices (bbg)

Poland is joining a group of countries that shield consumers from surging fuel prices with a plan to cut taxes and cap prices at the pump, according to Prime Minister Donald Tusk. The government will reduce the value-added tax and excise levies on fuels as well as impose a cap on retail prices that will be set daily in  line with wholesale levels, Tusk told a news conference on Thursday.

The moves, which need parliamentary approval, are expected to slash fuel costs by 1.2 zloty ($0.32) per liter and could take effect by Easter, Tusk said. The cabinet is also preparing windfall tax on fuel refiners — a measure that’s set to impact Polish energy champion Orlen SA, the largest company in Warsaw’s benchmark WIG20 stock index. Its shares have lost as much as 6.7% in the wake of the announcement.

The oil-importing nation has seen one of the sharpest increases in fuel prices among European Union members since the start of the Iran war. Unleaded gasoline costs have jumped 22%, while diesel by 40%, according to European Commission data. This compares with average increases of around 15% for gasoline and 26% for diesel across the 27-nation bloc.

* * * 

And as the global shockwave from the Iran war gets more acute, expect the response from officials and authorities to become increasingly more panicked.