October 25, 2022

Robust Mobility Tells an Encouraging Demand Story

European road fuels demand to perform better than the last two, pandemic-plagued, years with European governments shying away from re-introducing movement restrictions this fall. However, diesel demand is not going to benefit much from this, as manufacturing activity across Europe is going through its worst month since the start of the pandemic. Elsewhere, the top performers in terms of mobility are expected to see a strong end to the year, with Brazilian gasoline demand ending Q4 close to 2019 levels in out books, whereas India is preparing for another all-time high next month.

Global mobility continued to inch higher over the first half of October, with this month shaping up to see the highest readings since the start of the pandemic, some 9% above February 2020 levels. Indeed, not only are the usual suspects sustaining the strong momentum seen since Q2 (see chart), but also Europe is slowly but surely on an upwards trend in terms of mobility, to a large degree supported by Turkey. Elsewhere too we are seeing some glimmers of hope, with mobility in Poland, Germany, Italy, and the UK all trending slightly above or on par with pre-pandemic levels over the past weeks, with France also likely to see some normalization in mobility following the halt to oil strikes. Overall, governments across Europe have recently been assuring that there will not be movement restrictions this winter, with Spain being one of the last remaining countries to lift all COVID-related measures.

Consequently, we see European road fuels demand over the rest of Q4 remaining robust, with gasoline exceeding pre-pandemic levels over November and December in our books. On the side of gasoil, however, we expect the darkening economic outlook for the region to keep demand for the latter below year-ago levels over the last two months of the year, albeit at a narrower y/y downside than what we have seen over September and October. Indeed, the Eurozone’s manufacturing PMI slumped in October to its lowest level since the start of the pandemic, landing at 44 index points and deep into contractionary territory. With the ongoing energy crisis weighing on the region’s heavy industries (most notably Germany’s manufacturing PMI lost almost 3pp m/m this month and ended up at levels reminiscent of Q2-2022 readings), it is difficult to see a rebound in gasoil demand across Europe, with a recession being the talk of the town these days.

Demand-Weighted Regional Mobility Compound Indicators [%chg. vs February 2020, 7 DAvg]

Source: Kpler estimates based on Google data

India, Brazil, and the Middle East (Saudi Arabia and Iraq), on the other hand, have registered an impressive last couple of weeks in terms of general mobility, with India now sitting at the highest level since the start of the pandemic, more than 30% above February 2020 levels by mid-October. With the strong momentum in mind and considering the observed seasonality to Indian gasoline demand from the past couple of years, we currently see the latter climbing to a highest-on-record level of 850 kbd next month, some 15 kbd higher m/m but an impressive 100 kbd y/y upside for said month.

In Brazil too, we see November and December gasoline demand averaging some 1.06 Mbd, some 50 kbd upside vs October but still slightly below 2020 levels. Indeed, ytd Brazilian gasoline demand has been, albeit below, close to 2019 levels and we would not be surprised to see it climbing to within touching distance to pre-pandemic levels over the rest of Q4, further enjoying support from the recent tax shifts pushing gasoline prices at the pump over the past weeks. In this sense, the situation is hardly going to improve for ethanol demand, as the recent tax shifts have put refinery-based gasoline at the top of the consumers’ pecking order at the pump, something which will probably remain in place regardless of the outcome of the upcoming run-off to the presidential elections.

Brazil: Gasoline demand (kbd)

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