India’s transportation fuel demand growth is expected to slow sharply in the second half of 2026, as rising fuel prices, government-led green measures and a weak rupee weigh on mobility and consumption trends, according to a report.The report, prepared by Elif Pennisi, senior analyst (modeling) at Kpler, revised expectations for growth in demand for refined products in India for the year 2026 by approximately 77 thousand barrels per day, or 39 percent, to approximately 78 thousand barrels per day from a previous estimate of 128 thousand barrels per day.
According to news agency PTI, the cut reflects weaker expected growth in demand for gasoline and diesel due to higher fuel costs, softer mobility trends and official efforts to conserve fuel amid the ongoing West Asia crisis.Petrol and diesel prices have risen by about Rs 5 per liter in three instalments since May 15, after oil marketing companies transferred part of the burden of rising global crude oil prices to consumers.
Gasoline demand faces the most severe downside risks
The report said that demand for gasoline is likely to witness the largest slowdown, with expected growth revised downward by 25,000 barrels per day, from 63,000 barrels per day to 38,000 barrels per day.Gasoline consumption is now estimated at about 1,010 thousand barrels per day, compared to the previous estimate of 1,035 thousand barrels per day.
According to the report, weak mobility activity, slowdown in discretionary travel and government fuel-saving campaigns are expected to reduce fuel consumption.Annual diesel demand growth also fell by about 20,000 bpd, while jet fuel demand growth nearly halved to about 6,000 bpd from 11,000 bpd earlier due to expectations of lower air travel and tightening spending patterns.“The revisions primarily reflect weak expected growth in demand for gasoline and diesel, as higher costs, weaker mobility trends, and recent government-led fuel conservation efforts increasingly fuel domestic transportation activity,” the report said, according to PTI.
Weak rupee, rising crude oil add pressure
The report noted that the macroeconomic environment in India has deteriorated since the escalation of the US-Iran conflict, with rising crude oil import costs, refinery expenses and a depreciation of the rupee leading to increased inflationary pressures.The rupee has fallen by about 6 percent since the conflict began, and by about 10 percent over the past year. Foreign exchange reserves have reportedly fallen by about 4.3 percent since late February, as authorities attempted to stabilize the currency and contain imported inflation.The report said the current average petrol price of around Rs 103 per liter remains well below the estimated break-even level of around Rs 125 per litre.Diesel prices near Rs 94 per litre are also below the estimated break-even range of Rs 115-120 per litre.Before the recent price revisions, state-run fuel retailers were reportedly losing nearly Rs 1,000 crore daily as rising crude oil procurement costs and a weak currency outpaced retail fuel prices.“The main issue is the inability of state-run retailers to weather rising import costs quickly enough to regain profitability,” the report said.
Russian crude continues to support supply security
The report added that India’s reliance on reduced Russian crude imports, estimated at 1.9-2 million barrels per day, continues to provide stability to the domestic fuel market amid geopolitical uncertainty in West Asia.Policymakers now appear to be prioritizing macroeconomic stability, managing inflation, preserving foreign exchange and securing fuel supplies at the expense of near-term fuel demand growth.The report warned that unless crude oil prices fall significantly, the rupee stabilizes or additional fiscal support measures are taken, it may become difficult to avoid further rise in fuel prices and take stricter fuel conservation measures.