India’s refined petroleum demand growth forecast has been significantly downgraded, marking a challenging period for the nation’s economy. Rising crude oil import costs and a weaker rupee, combined with government austerity measures, are set to impact oil demand severely.
Downgrade in Demand Growth Forecast
According to Kpler, India’s refined products demand growth is now projected at 77,000 barrels per day (kbd) for the current year. This figure represents a nearly 40% reduction from the earlier estimate of 128 kbd. The decline stems from rising import costs that state-run retailers are passing onto consumers.
Impact of Austerity Measures
The cumulative pump price hike has exceeded ₹7.5 per liter for both petrol and diesel. With India importing approximately 85% of its crude oil, the country remains one of the largest oil consumers worldwide. Currently, India consumes around 5.5 million barrels of crude oil daily, with over one-third sourced from Russia.
Shifts in Crude Oil Import Routes
In response to geopolitical tensions, approximately 70% of India’s crude imports are now rerouted away from the Strait of Hormuz, up from 55% prior to the crisis. India is diversifying its sources, obtaining crude from over 40 different countries, thereby mitigating reliance on high-risk Gulf routes.
Economy Under Pressure
Austerity measures indicate that Indian policymakers are prioritizing economic stability. This includes managing inflation and preserving foreign exchange reserves. While these measures are not expected to cause outright demand destruction, they could considerably slow the previously robust growth in transportation fuel demand.
Projected Demand Trends
Kpler anticipates that gasoline demand will face the most significant decline, projected to grow by only 38 kbd instead of the previously estimated 63 kbd. Diesel consumption is expected to see a 50% dip, contributing only 6 kbd to growth. Jet fuel demand has also been revised downward due to a projected decline in both consumer and corporate aviation activity.
GDP Growth Forecasts and Economic Measures
Rating agencies, including ICRA, have adjusted India’s GDP growth forecast to approximately 6.2%. Crude oil prices have surged by nearly $30 per barrel compared to levels before the onset of Middle Eastern conflicts. The economy is already feeling the strain, with foreign exchange reserves dropping from $728 billion to $691 billion amid rising costs and a widening current account deficit.
Government Initiatives to Curb Fuel Consumption
- Restrictions on non-essential fuel consumption.
- Encouragement of carpooling and public transportation.
- Promotion of work-from-home arrangements.
Prime Minister Narendra Modi has called for citizens to delay non-essential purchases, including gold and overseas travel. The government has also raised import duties on gold and silver from 6% to 15% and tightened regulations surrounding duty-free imports.
Future Prospects for Domestic Oil Production
India is working to enhance its domestic crude oil production to reduce import dependence. The government aims to attract $100 billion in investments for domestic exploration by 2030. This includes opening nearly one million square kilometers of offshore zones for hydrocarbon exploration.
Exploration and Partnerships
The Directorate General of Hydrocarbons has spearheaded efforts to open up almost 99% of India’s Exclusive Economic Zone. This involves a focus on deep-sea exploration in the Andaman Basin, which covers about 225,000 square kilometers. State-owned Oil and Natural Gas Corporation (ONGC) is collaborating with international firms like BP Plc to enhance production techniques and maximize output from key fields.
