India Fuel Demand Slows Amid Price Hikes
· news
India’s Fuel Demand Sputters Amid Price Hikes and Economic Headwinds
The latest forecast from Kpler’s lead analyst, Elif Binici, paints a dismal picture for India’s fuel demand growth in the second half of 2026. The report revises down the country’s refined products demand growth forecast by nearly 40%, to around 78,000 barrels per day (kbd), from an earlier estimate of 128 kbd.
This sharp slowdown is not unexpected, given the perfect storm of higher fuel prices, government-led conservation measures, and a weakening rupee. Petrol demand faces the steepest downside risk, with projected growth revised down by 25,000 barrels per day to just 38,000 barrels per day. This decline represents a significant drop from an earlier estimate of 63,000 barrels per day.
India’s macroeconomic environment has taken a hit since the escalation of the US-Iran conflict. Rising crude import costs, refinery expenses, and rupee depreciation have contributed to inflationary pressure. The rupee has weakened by around 6% since the conflict began, and foreign exchange reserves have declined by nearly 4.3% since late February.
Petrol prices are still relatively low, averaging Rs 103 per litre, despite estimates suggesting they should be closer to Rs 125 per litre for breakeven. Diesel prices hover near Rs 94 per litre, below the estimated breakeven range of Rs 115-120 per litre. State-run fuel retailers face significant losses – reportedly around Rs 1,000 crore daily before recent price revisions – due to their inability to pass through rising import costs quickly enough.
India’s dependence on discounted Russian crude imports provides stability to the domestic fuel market amid geopolitical uncertainty in West Asia. However, policymakers may now be prioritising macroeconomic stability, inflation management, foreign exchange preservation, and fuel supply security over near-term fuel demand growth.
Unless crude prices ease significantly or additional fiscal support measures are introduced, further fuel price hikes and stricter fuel-conservation measures will become difficult to avoid. This could have far-reaching implications for India’s economy, particularly in the context of a global energy market that is increasingly volatile.
Policymakers must balance competing priorities: maintaining economic growth, managing inflation, preserving foreign exchange reserves, and ensuring fuel supply security. The task ahead will be daunting, but one thing is clear – India’s fuel demand growth will not recover quickly or easily unless drastic measures are taken to address the underlying structural issues.
Reader Views
- CMColumnist M. Reid · opinion columnist
The revisionist economic forecast for India's fuel demand is a stark reminder that policymakers can't forever mask inflationary pressures with artificially low prices and imports of discounted Russian crude. While state-run retailers continue to hemorrhage cash, policymakers may finally be forced to rethink their fuel pricing strategy, acknowledging that Rs 103 per litre petrol is not sustainable in the long term. It's time for India to adopt a more market-friendly approach to fuel pricing, one that balances economic stability with the need to recover costs and invest in future energy infrastructure.
- RJReporter J. Avery · staff reporter
India's fuel demand slowdown is a symptom of broader economic woes, but the government can't keep kicking the can down the road forever. The sharp revision in Kpler's forecast suggests that price hikes alone won't stabilize state-run retailers' losses. What's missing from this narrative is a deeper examination of India's energy subsidies and their impact on fiscal sustainability. Can policymakers muster the courage to wean off these costly giveaways, or will they continue to prop up fuel prices with public money?
- ADAnalyst D. Park · policy analyst
India's fuel demand slowdown is a symptom of deeper economic woes rather than just a temporary price shock response. While the rupee's depreciation and higher import costs are certainly contributing factors, policymakers would do well to acknowledge that India's over-reliance on cheap Russian crude is masking more fundamental issues. State-run retailers' losses are merely a Band-Aid solution, delaying necessary reforms in the industry. By focusing solely on macroeconomic stability, policymakers risk overlooking the need for long-term structural adjustments that could ultimately curb inflation and stabilize fuel demand growth.