Record-High Retail Prices Unlikely To Deter India’s Fuel Demand

Fuel consumption is estimated to recover past pre-pandemic levels even as retail prices are at record highs.

A droplet of petroleum drops from a fuel nozzle at a fuel pump. (Photographer: Andrey Rudakov/Bloomberg)
A droplet of petroleum drops from a fuel nozzle at a fuel pump. (Photographer: Andrey Rudakov/Bloomberg)

India’s fuel consumption is estimated to recover past pre-pandemic levels even as retail prices are at record highs and benchmark crude is expected to rise.

Overall consumption of petroleum products is expected to rise 9.8% year-on-year to 215.24 million metric tonnes in 2021-22, according to forecasts released by Petroleum Planning and Analysis Cell. That will take it higher than 214.13 million metric tonnes in FY20, after falling to 195.94 MMT in FY21. A rebound in industrial activity and increased government spending is seen supporting the recovery.

To be sure, the consumption fell in February to 17.2 million tonnes from 18.1 million a year earlier, Bloomberg reported on Friday citing oil ministry data. That’s the fourth monthly drop since October and coincides with rising oil prices. Crude topped $70 on Friday.

The price of the Indian basket of crude has surged 30.6% so far this year to $66.6 a barrel as on March 9. Taxes on fuel remain at record high, prompting oil retailers to increase prices 22 times since Jan. 6. Despite a pause after March 1, petrol and diesel now cost record Rs 91.17 and Rs 81.47 a litre, respectively, in Delhi.

Urvisha H Jagasheth, research analyst at CARE Ratings Ltd. is optimistic. “With the Indian government focusing on inoculating the entire population, we could expect an increase in mobility, more air travel, to drive the overall fuel consumption growth,” said in an emailed response to BloombergQuint. "Opening of the economy, internally and externally, on the back of a low base effect will also support the overall growth.”

Here is how demand has fared and how it’s expected to rise for each of the fuels:

Petrol And Diesel

Petrol consumption has been growing since September 2020, but diesel consumption is yet to catch up. The PPAC predicts a 13.3% increase in consumption of both fuels in 2021-22 led by strong demand for transportation and industrial fuels. Commuters switching to personal cars from public transport is expected to drive India’s petrol demand, Bloomberg reported.

“Diesel demand will be supported by the prediction of a normal monsoon, sanguine farming activity, recovery in port traffic and increase in logistics activities,” Jagasheth said.


Aviation turbine fuel is expected to witness the biggest rise in consumption, growing 74.2% year-on-year led by the low base effect. Demand for ATF was hit harder than other fuels because of global travel restrictions and a ban on international flights. With increased vaccination and declining covid-19 infections, business and leisure travel is expected to increase, supporting ATF consumption in 2021-22.

Other Fuels

  • Consumption of LPG is expected to grow by 4.8% over last year in 2021-22 supported by government schemes aimed at increasing consumption of the cleaner cooking fuel.

  • Kerosene consumption is expected to fall as subsidies for the fuel get phased out and LPG finds greater adoption.

  • Naphtha consumption is expected to increase 2.2% YoY in 2021-22. “Consumption of naphtha is to increase with the growth in the petrochemicals industry and due to its use in urea plants,” Jagasheth said. “Reduction in the import duty of naphtha could also encourage consumption to an extent.”

  • The analyst said higher demand for cement led by an uptick in infrastructure and real estate activities will lead to increased pet coke demand.

(Updates an earlier version with February oil demand data reported by Bloomberg)