India's Fuel Demand Growth Set to Slow Sharply as Prices Rise and Rupee Weakens

India's transportation fuel demand is heading for a significantly softer second half of 2026, as a combination of retail price hikes, government conservation measures and macroeconomic pressure from the ongoing US-Iran conflict curbs mobility and consumption, PTI reported citing a report by energy analytics firm Kpler.

Elif Binici, Lead Analyst at Kpler, has revised down India's 2026 refined products demand growth forecast by around 77,000 barrels per day (kbd) — a cut of roughly 39% — to approximately 78 kbd from an earlier estimate of 128 kbd. The revision reflects weaker expected growth across petrol, diesel and jet fuel as higher costs and government-led conservation efforts feed through to domestic transportation activity.

Petrol faces the sharpest downside, with demand growth now projected at 38 kbd against the previous estimate of 63 kbd. Absolute petrol consumption is expected to settle around 1,010 kbd, down from 1,035 kbd, as commuting activity softens and discretionary travel declines. Annual diesel demand growth has been trimmed by around 20 kbd, while jet fuel growth has been nearly halved to 6 kbd from 11 kbd, reflecting expectations of reduced air travel and tighter consumer spending.

The price backdrop has shifted markedly. Petrol and diesel prices have been raised by around ₹5 per litre each across three instalments since 15 May, as state-run oil marketing companies began passing on a portion of surging import costs. Even so, the increases leave retailers well short of breakeven. The national average petrol price of around Rs 103 per litre compares with an estimated breakeven of nearly ₹125 per litre, while diesel at roughly ₹94 per litre sits below an estimated breakeven of ₹115-120 per litre. Before the price revision cycle began, state-run retailers were losing approximately ₹1,000 crore per day.

The broader macroeconomic backdrop has deteriorated since the US-Iran conflict escalated. The rupee has weakened around 6% since hostilities began and roughly 10% over the past year, amplifying crude import costs and adding to inflationary pressures. Foreign exchange reserves have fallen approximately 4.3% since late February as authorities attempt to stabilise the currency and limit volatility in domestic fuel prices.

India's continued reliance on discounted Russian crude — currently estimated at 1.9 to 2mn barrels per day — remains a key stabilising factor for the domestic fuel market amid Middle East uncertainty.

The Kpler report noted that recent austerity signals from Indian policymakers suggest macroeconomic stability, inflation management and fuel supply security are taking precedence over near-term demand growth. While outright demand destruction is not expected, the previously robust trajectory for transportation fuel consumption is likely to slow materially. Unless crude prices ease, the rupee recovers or additional fiscal support is introduced, further price hikes and conservation measures may be difficult to avoid, the report warned.