India’s transportation fuel demand growth is expected to slow sharply in the second half of 2026 as higher fuel prices, government-led conservation measures and a weak rupee weigh on mobility and consumption trends, according to a report.The report by Elif Binisi, principal analyst (modelling), Kpler, cut India’s 2026 refined products demand growth forecast by about 77,000 barrels per day (kbd), or 39 per cent, to about 78 kbd from the earlier estimate of 128 kbd.According to news agency PTI, the downgrade reflects weaker-than-expected growth in demand for petrol and diesel due to rising fuel costs, softer mobility trends and official efforts to conserve fuel amid the ongoing crisis in West Asia.Petrol and diesel prices have increased by about Rs 5 per liter in three installments since May 15 after oil marketing companies passed on the burden of rising global crude prices to consumers.
There is a danger of a huge decline in the demand for petrol.
The report said that petrol demand is likely to see the sharpest slowdown, with the estimated growth reduced by 25 kbd to 63 kbd to 38 kbd.Petrol consumption is now estimated at 1,010 kbd, whereas the earlier estimate was 1,035 kbd.According to the report, weak commuting activity, slower discretionary travel and government fuel-saving campaigns are expected to curb fuel consumption.Annual diesel demand growth was also cut by about 20 kbd, while jet fuel demand growth almost halved to about 6 kbd from 11 kbd earlier due to reduced air travel and expectations of tighter spending patterns.“The revision reflects weaker-than-expected growth in gasoline and diesel demand primarily due to higher costs, weak mobility trends and a rapid increase in domestic transportation activity due to recent government-led fuel conservation efforts,” the report quoted PTI as saying.
Rupee weakness, pressure increased due to rise in crude oil
India’s macroeconomic environment has deteriorated since the escalation of the US-Iran conflict, with rising crude oil import costs, refinery expenses and rupee depreciation leading to rising inflation pressures, the report said.The rupee has weakened by about 6 percent since the conflict began and about 10 percent in the past year. Foreign exchange reserves also declined by about 4.3 percent since the end of February as authorities attempted to stabilize the currency and control imported inflation.The report said the current average price of petrol is around Rs 103 per litre, which is well below the estimated breakeven level of around Rs 125 per litre.Diesel prices at around Rs 94 per liter are also below the estimated breakeven range of Rs 115-120 per liter.Before the recent price revision, state-run fuel retailers were reportedly incurring losses of around Rs 1,000 crore per day as rising crude oil procurement costs and currency weakness had driven down retail fuel prices.“The main issue is the inability of state-run retailers to deal with rising import costs quickly enough to restore profitability,” the report said.
Russian crude continues to support supply security
The report said India’s dependence on subsidized Russian crude imports, amounting to about 1.9-2 million barrels per day, provides stability to the domestic fuel market amid geopolitical uncertainty in West Asia.It appears that policymakers are now prioritizing macroeconomic stability, inflation management, foreign exchange conservation and fuel supply security over near-term fuel demand growth.The report warned that unless crude prices fall significantly, the rupee stabilizes or additional fiscal support measures are taken, it may be difficult to avoid further increases in fuel prices and stricter fuel-conservation measures.
