India's oil demand growth is forecasted to reach its lowest point since the pandemic, primarily due to the ongoing Middle East conflict. Kpler Ltd. has revised its oil demand growth estimate to 78,000 barrels a day, a significant reduction of nearly 40% from pre-war projections. This marks the lowest growth rate in a decade, excluding the pandemic-hit year of 2020.
Supply Side Challenges
The conflict in Iran has led to a surge in energy prices, severely impacting India, the world's third-largest crude importer. State-run refiners are facing daily losses of 6 billion rupees ($63 million) as they sell diesel, gasoline, and liquefied petroleum gas below market rates. Despite modest price increases, these refiners remain under pressure due to the international crude price surge.
Demand Side Dynamics
The demand for diesel and gasoline has been notably affected. Rystad Energy projects a drastic reduction in diesel demand growth to just 4,000 to 5,000 barrels a day, down from an earlier estimate of 50,000 to 60,000 barrels. Similarly, gasoline demand growth has been cut by 40% to 38,000 barrels a day. The All India Motor and Goods Transport Association reports a 15-20% reduction in fleet movement due to elevated fuel costs.
"The cost of transportation has increased and customers aren’t willing to pay for that," said Rajendra Kapoor, president of the All India Motor and Goods Transport Association.
Outlook and Future Projections
Despite the current slowdown, analysts like Stuti Jhunjhunwala from Energy Aspects believe the impact is temporary. Unlike China, which is rapidly electrifying its transport sector, India is expected to continue relying on gasoline and diesel for the foreseeable future. The consensus is that this is a temporary drag on growth rather than a permanent demand destruction.
| Metric | Pre-War Estimate | Current Estimate |
|---|---|---|
| Oil Product Demand | 4.2 million barrels/day | 4.1 million barrels/day |
| Diesel Demand Growth | 50,000-60,000 barrels/day | 4,000-5,000 barrels/day |
| Gasoline Demand Growth | 63,000 barrels/day | 38,000 barrels/day |
The market will closely watch upcoming data releases and geopolitical developments to gauge future trends in oil demand.
