Mike Mueller, head of Asian sales at the world’s biggest independent oil trader, Vitol, says they are seeing clear signs that the cost of oil is beginning to cause demand destruction, as consumers forcibly reduce consumption due to high prices. He spoke about it on a podcast by Gulf Intelligence, based out of Dubai

Muller said, “There’s very clear evidence out there of economic stress being caused by the high prices, what some people refer to as demand destruction… not just oil, but also liquefied natural gas.”

Refined fuels have skyrocketed in price to record highs, in the US and most other countries, driving the rise in inflation. Refined fuels have risen even faster and higher than crude, which itself is up 45% to $110 per barrel. The primary cause of the price rise in crude has been the disruption to the supply flows of Russian oil following the invasion of Ukraine. Western leaders sanctioned Russia, limiting the markets where it could sell its fuel and forcing it to sell at a discount. That diverted cheap Russian oil away from the west and into secondary markets in Asia and India, and that disruption in flows exacerbated an already tight market, raising prices.

Refined products are even more expensive due to a bottle neck in refining capacity. The crack-spread, which is the difference between the cost of a barrel of crude, and the refined products produced from it, such as gasoline or diesel, has risen to $50 per barrel, which is over three times the average for the last 100 years. This has produced record windfall profits for refineries. Exxon Mobile Corp. just noted that its refinery earnings for the second quarter have risen to $5.5 billion.

Vitol’s Muller said, “Refining margins are at levels that nobody would’ve predicted. The consensus out there seems to be that they cannot possibly go even higher than this.”

Even with the demand destruction beginning, prices may not drop however, since China is just coming out of lockdowns, and it is expected as their demand ramps up, prices will be supported against any decline. Vitol’s Chief Executive Officer Russell Hardy has said he sees demand from China ramping up by 1 million barrels per day by the end of 2022.

For his part Mueller says he does not see China ramping up any exports of refined products, despite its refiners having the capacity to increase production. He said, “More Chinese export quotas would be welcomed by the market and would do something to normalize those margins. But month after month, the disappointment sets in that the system is being kept relatively tight. It would appear that discipline is still very much in place.”