Fuel Shortage: Demand Controls & Government Response

Global fuel supplies are tightening, leading to rationing in several countries and raising concerns about demand destruction as prices surge. The situation is exacerbated by geopolitical tensions and disruptions to oil production.

Fuel Rationing Spreads Across Asia and Europe

Indonesia has begun rationing fuel, limiting purchases to 50 liters per vehicle for private consumers and implementing work-from-home policies for civil servants to conserve supply. Thailand is preparing similar fuel rationing plans, while Bangladesh is already enacting rations and has closed universities amid a critical fuel shortage, importing 95% of its needs.

Slovenia became the first European nation to impose a 50-liter fuel ration, though officials note the amount is unlikely to significantly impact daily consumption for most drivers. The move is seen as a symbolic step toward demand management should the fuel supply situation worsen.

Oil Supply Losses and Rising Prices

WTI crude oil recently traded above Brent crude, a rare occurrence attributed to fears of immediate supply tightness and anticipated, though potentially insufficient, relief later in the year. Analysts warn that demand destruction – a decline in consumption due to high prices – could occur if supply issues persist.

Kpler reported in mid-March that cumulative oil production losses linked to recent conflicts reached 133 million barrels, with daily production down by 10.7 million barrels. These losses could reach 11.5 million barrels daily by the end of the month, potentially equaling the amount the International Energy Agency has considered releasing to address the supply gap – 400 million barrels – if hostilities continue.

European diesel futures hit $200 after three tankers diverted from Europe to Asia. Calls for fuel rationing are increasing within the European Union, and the EU’s energy commissioner has acknowledged that rationing is being considered as an option to manage energy demand amid shortages. “This will be a long crisis … energy prices will be higher for a very long time,” the commissioner stated.

Demand Destruction and Potential Solutions

Demand destruction occurs when unexpected events or high prices force consumers to reduce oil and gas consumption. The industry dislikes this scenario. With over 11 million barrels of daily oil supply lost and a constrained natural gas supply, prices are rising to levels many consumers cannot afford, leading to declining demand.

Analysts suggest that reducing global oil demand by at least 8 million barrels daily will be necessary. Proposed measures include lower speed limits, increased remote work, greater use of public transportation, car sharing, and improved fuel efficiency. However, even flawless implementation of these measures may not be sufficient.

The return to normal supply is estimated to take three to six months once conflicts end, but this timeline extends with each day of continued disruption, as restarting shut-in oil wells becomes more difficult the longer they remain inactive.