India’s fuel austerity hits demand outlook

Annual product growth forecast cut 40 per cent

India’s transportation fuel demand growth is expected to slow sharply in the second half of 2026 as Government-led fuel conservation measures, elevated crude oil prices and a weakening rupee weigh on mobility and consumption trends, according to energy analysts.

Petrol and diesel prices have been hiked by about Rs 5 per litre each in three instalments since May 15 as oil companies passed on a part of soaring international oil prices to consumers. The price hikes came just as Prime Minister Narendra Modi urged citizens and Government departments to conserve fuel, encourage remote working and reduce non-essential travel as elevated energy prices pressure foreign exchange reserves and threaten to widen the current account deficit. This, together with higher prices, is likely to have a sobering impact on fuel demand growth.

A report by Elif Binici, Lead Analyst (Modeling) at Kpler, revised down India’s 2026 refined products demand growth forecast by about 77,000 barrels per day (kbd), or 39 per cent, to around 78 kbd from an earlier estimate of 128 kbd, citing weaker expected growth in gasoline and diesel consumption.

Petrol demand faces the steepest downside risk, with growth projected to undershoot the earlier growth estimate by 25 kbd (from 63 kbd to 38 kbd). Petrol consumption is now estimated at 1010 kbd, down from 1035 kbpd amid weaker commuting activity, slower discretionary travel and Government fuel-saving campaigns. Annual diesel demand growth was cut by around 20 kbd, while jet fuel demand growth was revised down nearly 50 per cent to about 6 kbd from 11 kbd previously, reflecting expectations of reduced air travel and tighter spending patterns.

“The revisions primarily reflect weaker expected growth in gasoline and diesel demand as higher costs, weaker mobility trends, and recent Government-led fuel conservation efforts increasingly feed into domestic transportation activity,” according to the report.

The report said India’s macroeconomic backdrop had deteriorated since the escalation of the US-Iran conflict, with higher crude import costs, refinery expenses and rupee depreciation increasing pressure on inflation and state-run oil marketing companies (OMCs).

The rupee has weakened roughly 6 per cent since the start of the conflict and 10 per cent over the past year. At the same time, FX reserves have reportedly fallen approximately 4.3 per cent since late February as authorities attempt to stabilise the currency, contain imported inflation, and limit volatility in domestic fuel prices. Retail petrol and diesel prices, largely frozen since 2022 despite higher global crude prices, were raised by about Rs 5 per litre in three instalments during the last 10 days. However, the increases remain well below estimated breakeven levels for state-run retailers.

The current national average petrol price of Rs 103 per litre remains far below estimated breakeven levels of nearly Rs 125 per litre, while diesel prices near Rs 94 per litre compare with estimated breakeven levels of Rs 115-120 per litre.

Before the start of the price revision cycle, state-run fuel retailers were losing roughly Rs 1,000 crore per day as elevated crude procurement costs and currency weakness continued to outpace retail prices. “The key issue is the inability of state-run retailers to pass through rising import costs quickly enough to restore profitability,” the report said.

India’s dependence on discounted Russian crude imports, currently estimated at around 1.9-2 million barrels per day, continues to provide a key stabilising force for the domestic fuel market amid ongoing geopolitical uncertainty in the Middle East, it added.

“Recent austerity measures suggest Indian policymakers are increasingly prioritising macroeconomic stability, inflation management, FX preservation and fuel supply security over near-term transportation fuel growth. While the measures are unlikely to trigger outright demand destruction, they are expected to materially slow India’s previously robust transportation fuel growth trajectory during the second half of the year,” the report said.

Unless crude prices ease materially, the rupee stabilises, or additional fiscal support measures are introduced, further retail fuel price increases and additional fuel-conservation measures may become increasingly difficult to avoid, it added.