Global Commodities: Can the world live with 9% less oil?

Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kaneva, and I head JPMorgan Global Commodities Research. The conflict in Iran has passed its 90-day mark.

Although the U.S. and Iran seem to be closing in on the deal, getting a signed agreement is proving to be a strenuous process. Oil markets have so far been supported by a combination of unprecedented inventory releases, ramped up exports from the U.S., and demand losses, keeping prices relatively subdued at around $100. Globally, we tracked demand losses of 2.8 million barrels per day in March, 4.3 in April, and 5.6 million barrels per day in May, while acknowledging extremely limited visibility in parts of Africa and Southeast Asia.

By our estimate, roughly 40 to 60 percent of this decline reflects weaker petrochemical feedstock demand, while the remainder is coming from transport fuels. What is remarkable so far is that despite these immense losses in demand, the broader impact on global economic activity has been relatively contained. For example, our economies have trimmed global growth only by about 24 basis points in 2026, while raising inflation by around 100 basis points.

This discrepancy warrants a careful analysis. Last week, I visited China. The week before, I was in Europe.

I wanted to see for myself how the countries are managing the largest supply disruption in history, and found that demand has dropped in China by as much as 9 percent, or almost 1.5 million barrels per day, abruptly, unexpectedly, and with remarkably little visible disruption. Focusing on China, the sharpest hit has been in petrochemicals demand, but at the same time, the weakness has spread to transportation fuels like gasoline, jet fuel, and diesel. The decline, interestingly, does not appear to be a product of a formal government conservation campaign, for example, like in India.

There were no conspicuous appeal to save energy, no major limits on mobility, and no sense of crisis in daily life. Instead, it appears that consumers have made a quiet economic choice. When faced with higher gasoline, diesel, and airfare, many seem to have shifted away from oil-based transportation towards cheaper, lower-carbon alternatives like electric buses, gas-powered trucks, subways, electrified high-speed rail, and electric taxes.

Feedback from Europe tells a very similar story. Unlike 2022, when the energy shock registered as an acute macroeconomic crisis, this time the oil shock has so far felt oddly more manageable, even as it marks the largest disruption to oil markets on record. For example, even with oil prices nearing $120 a barrel in April and May, electricity prices across most European countries continue to slip into negative territory, pushed down by massive surges in solar and wind generation.

Crucially, what we're seeing in China does not look like an outright collapse in activity. So when you have this massive drop of about 10, 9, 10% in the oil demand, you would expect some very, very sharp weakening activity. But when you take a closer look, road transport indicators have shown very little material weakening beyond normal seasonality, yet gasoline and diesel demand fell sharply in April and May, a diversion that only makes sense if the miles are still being driven, but increasingly in different powertrains.

So consistent with this interpretation, China's highway EV charging volumes, for example, went to record highs during the spring festival holiday week that takes place in the late February, and then they surged by over 55% year on year on the first day of the five-day May Day holiday in early May. China's Ministry of Transport, for example, estimates that an average of 15.4 million electrified vehicles traveled during the May holiday period, accounting for a massive 24% of all vehicles on the road, up 33% from a year earlier. So a very similar pattern is emerging in aviation.

Taking a closer look, Chinese air travel is running about 6.5% below last year's pace so far in May. The bulk of the weakness is definitely concentrated in the domestic market, but again, here the story may be the substitution rather than retrenchment. Taking a closer look at the May Day holiday traffic, China saw a record 1.5 billion inter-regional passenger trips.

So that was up about 3.5% from the same period a year earlier, but taking a look at the composition of that travel, road travel remained the dominant mode, up about 3.5% year on year. Rail trips rose 4.6%, but civil aviation fell almost 6%. So against this backdrop, China's high-speed rail network is often faster, cheaper, and increasingly the default choice for domestic travel.

I myself took a speed train from Beijing to Shanghai. In effect, some of this jet fuel demand may now be shifting to the power grid by the electrified rail rather than disappearing altogether. So taken together, these developments in China and Europe raise a larger set of questions.

Number one, how much of today's demand weakness is likely to reverse once conditions normalize? And the second question is how much of that reflects a more durable shift in consumption? So put differently, could the world actually function with something like 9% less oil?

So we believe that the answer is not straightforward, it's rather nuanced. The decline of that magnitude would typically read as recessionary, especially if it's set against the global financial crisis when the world's oil demand fell by only about 2% at the peak of the global financial crisis in January 2009. But if a meaningful share of this reduction comes from substitution rather than lost activity, the macro signal is materially different.

So the lessons of the 1973 oil shock are instructive, precisely because the world today looks fundamentally different from the one that entered the first oil embargo. In 1973, oil was deeply embedded across nearly every part of the global economy. Electricity generation was heavily oil dependent, vehicle efficiency was poor, public transportation infrastructure was limited, and large scale alternatives barely existed.

The result was a severe microeconomic shock that triggered recession, inflation, industrial weakness, and the lasting restructuring of global energy systems. Much of the modern energy system was built in direct response to those vulnerabilities. For example, in the case of the United States, the crisis led to the creation of the Strategic Petroleum Reserve, the establishment of the Department of Energy, the introduction of fuel economy standards, and even the national 55 miles per hour speed limit aimed at reducing gasoline consumption.

Across Europe and Japan, governments accelerated the build out of nuclear power, expanded public transportation systems, improved building insulation standards, and diversified the way from oil and electricity generation. The crisis also reshaped industrial processes, encouraging smaller and more fuel efficient vehicles, and ultimately reduced the share of oil in the global energy mix over the following decades. So this raises the question, the key question for today, should we expect structural changes of similar magnitude from the current shock?

The answer is possibly yes, but we believe that the vector of change may be different. Our view is that the 1973 crisis pushed economists to use energy more efficiently, but two major wars involving large oil producers over the past five years would accelerate something broader, the steady decoupling of economic activity from oil consumption itself. So where exactly we see those changes?

So gasoline demand may prove to be one of the clearest examples of this crisis driven behavior adaptation. So in general, when customers switch to electric vehicles, it's very hard to come back. It's a very, very sticky shift.

So in history in general suggests that past oil shocks often left lasting declines in gasoline demand, and we believe that this may prove no difference. So on that basis, we expect that some of the portion of this 900 KBD loss in gasoline demand that we're observing so far may never fully return. Diesel shows a similar, more uneven risk profile.

Part of the roughly 850 KBD declining diesel demand may also prove durable with the risk of permanent substitution concentrated in China. Petrochemicals are a much harder case for substitution because they run deep through the supply chains in ways that are very difficult to unwind. For that reason, we assume that most of the roughly 2.4 million barrels per day of loss in petrochemical feedstock demand is likely to return as supply conditions normalize.

Similar situation with the jet fuel, roughly 500 KBD of demand loss are very, very hard to substitute. We believe most of that will recover once supply chains stabilize. Fuel oil demand, however, is very different.

So the destruction is estimated at about 600 KBD so far, driven by weaker shipping, industrial activity, refinery disruptions, and lower oil fired power burn. We believe that a very big amount of that demand destruction most likely will never come back. We would like to leave our listeners with two conclusions overall.

Number one, the demand destruction, demand loss, or demand substitution observed so far from the current shock is indeed very, very large. But at the same time, the broader impact on global economic activity has been relatively contained, reflecting the smaller sensitivity of the global economy to the oil and oil prices and oil demand. The second conclusion is that most likely a significant part of that demand destruction that we observe at the moment is not coming back because it's being lost to the substitution.

In conclusion to our listeners, thank you for tuning into the Commodities Edition of J.P. Morgan's At Any Rate podcast. We look forward to continuing the conversation next week.

This communication is provided for information purposes only. Please refer to J.P. Morgan Research Reports related to its content for more information, including important disclosures. 2026, J.P.

Morgan Chase & Company, All Rights Reserved. This episode was recorded on May 29th, 2026.