India's Fuel Demand Growth to Slow Sharply in H2 2026 Amid Price Hikes and Rupee Weakness

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 weakening rupee weigh on mobility and consumption trends, according to a report. The report by Kpler’s lead analyst (modelling), Elif Binici, revised down India’s 2026 refined products demand growth forecast by around 77,000 barrels per day (kbd), or 39 per cent, to nearly 78 kbd from an earlier estimate of 128 kbd. As per news agency PTI, the downgrade reflects weaker expected growth in petrol and diesel demand due to elevated fuel costs, softer mobility trends and official efforts to conserve fuel amid the ongoing West Asia crisis. Petrol and diesel prices have been increased by around Rs 5 per litre in three instalments since May 15, after oil marketing companies passed on part of the burden of soaring global crude oil prices to consumers.

Petrol demand faces steepest downside risk

The report said petrol demand is likely to see the sharpest slowdown, with projected growth revised down by 25 kbd, from 63 kbd to 38 kbd. Petrol consumption is now estimated at 1,010 kbd, compared to the earlier estimate of 1,035 kbd. According to the report, weaker commuting activity, slower discretionary travel and government fuel-saving campaigns are expected to curb fuel consumption. Annual diesel demand growth was also cut by around 20 kbd, while jet fuel demand growth was nearly halved to about 6 kbd from 11 kbd earlier due to 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,” the report said, as quoted by PTI.

Rupee weakness, crude surge add pressure

The report noted that India’s macroeconomic environment has deteriorated since the escalation of the US-Iran conflict, with rising crude import costs, refinery expenses and rupee depreciation increasing inflationary pressure. The rupee has weakened by around 6 per cent since the conflict began and nearly 10 per cent over the past year. Foreign exchange reserves have also reportedly declined by about 4.3 per cent since late February as authorities attempted to stabilise the currency and contain imported inflation. The report said the current average petrol price of around Rs 103 per litre remains well below the estimated breakeven level of nearly Rs 125 per litre. Diesel prices near Rs 94 per litre are also below the estimated breakeven 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 because rising crude procurement costs and currency weakness outpaced retail fuel 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.

Russian crude continues to support supply security

The report added that India’s dependence on discounted Russian crude imports, estimated at around 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 prioritising macroeconomic stability, inflation management, foreign exchange preservation and fuel supply security over near-term fuel demand growth. The report warned that unless crude prices ease significantly, the rupee stabilises or additional fiscal support measures are introduced, further fuel price hikes and stricter fuel-conservation measures may become difficult to avoid.