India’s 2026 Fuel Demand Revised Down by 39 per Cent

 Chennai: Commodities and shipping intelligence firm Kpler has revised down India’s refined petroleum products demand by 77 kilo barrels per day or 39 per cent from 128 KBD to around 78 KBD. Rising crude import costs, rupee weakness and government-led fuel conservation measures are weighing on transportation fuel demand growth during the second half of the year.

The impact from austerity measures, inflationary pressure and weaker mobility trends begins feeding progressively into fuel demand mainly from June onward, with the largest downside expected during June-September.

Gasoline demand growth could undershoot previous expectations by approximately 5.3% during July-August and around 4% during September, equivalent to roughly 50kbd, depending on monthly baseline demand levels.

Gasoline demand is segmented by end-use category, including commuting, discretionary driving, commercial two-wheeler/three-wheeler activity, and rural/private consumption. The largest downside is assumed within the two-wheeler-dominated commuting segment, which represents roughly 50% of Indian gasoline demand and is expected to be most sensitive to fuel-saving behaviour, weaker urban mobility and government conservation messaging.

Kpler also expects moderation in discretionary passenger vehicle usage, which accounts for roughly 25% of gasoline demand. Retail prices are likely to continue increasing progressively, although a sudden ₹25–30/liter spike still appears unlikely.

Diesel demand is expected to remain relatively more resilient given its heavier exposure to freight, agriculture, construction, and industrial activity. However, slower industrial expansion and elevated logistics costs are still expected to weigh on overall diesel demand growth during the second half of the year. As a result, annual diesel demand growth was revised down by 20kbd. The monthly adjustments are expected to peak in July-August during the monsoon season, with an average 50kbd downward revision from the baseline.

Calls for reduced foreign travel could also weigh on jet fuel demand during the second half of the year, with annual jet demand growth now revised down by roughly 50%, from approximately 11kbd previously to around 6kbd.

At the centre of the issue is the growing financial stress facing India’s state-run fuel retailers. Retail fuel prices had remained largely frozen since 2022 despite materially higher crude procurement costs and a weaker domestic currency.

Although gasoline and diesel prices increased by roughly ₹3/litre on 15 May and by less than ₹1/litre again this week, helping to modestly reduce OMC under-recoveries, the adjustments remain well below the estimated breakeven levels.