India’s Fuel Demand Falls 6.5% In May Amid Rising Prices And Supply Constraints

India’s fuel consumption recorded a notable decline in May, reflecting the combined impact of higher prices and global supply disruptions. Data from Petroleum Planning and Analysis Cell shows a broad contraction in petroleum usage, although demand trends varied significantly across fuel categories.

Overall Fuel Consumption Sees Sharp Decline

India’s total consumption of petroleum products dropped by 6.5% year-on-year in May, falling to 19.93 million tonnes compared to 21.3 million tonnes during the same period last year.

This decline highlights the growing pressure on domestic fuel demand due to rising global energy prices and supply uncertainties. The ongoing geopolitical tensions in West Asia have further intensified the situation, contributing to volatility in crude oil supply chains and pricing.

The contraction also signals a temporary slowdown in certain economic activities that are heavily dependent on petroleum-based products.

LPG Consumption Witnesses Significant Drop

Sharp Decline in Household Fuel Demand

One of the most significant changes in May was observed in the consumption of liquefied petroleum gas (LPG). Demand for LPG fell sharply by 20.5% year-on-year, declining to 2.13 million tonnes from 2.68 million tonnes.

LPG is widely used across Indian households as a primary cooking fuel, as well as in certain industrial applications. The sharp decline indicates reduced offtake, especially in rural and semi-urban regions.

Policy Changes Impact Consumption

The fall in LPG demand is partly attributed to government demand-management measures. Authorities extended booking cycles for LPG refills from 21 days to as much as 45 days in rural areas.

This change effectively reduced the frequency of cylinder purchases, slowing down consumption levels. Additionally, reduced subsidies under schemes such as Pradhan Mantri Ujjwala Yojana have also influenced consumer behaviour amid rising prices.

Petrol And Diesel Demand Remains Resilient

Steady Growth Despite Higher Prices

In contrast to the decline in LPG, demand for petrol and diesel continued to grow, reflecting resilience in transportation and mobility sectors.

Petrol consumption rose by 3.4% year-on-year to 3.9 million tonnes, indicating sustained use of personal vehicles. Diesel, which accounts for the largest share of fuel consumption in India, recorded a 1.6% increase, reaching 8.7 million tonnes.

Economic Activity Drives Demand

The growth in diesel demand is often linked to economic activity, including transportation of goods, agricultural operations, and infrastructure development. Despite rising fuel prices, these sectors have continued to operate steadily, supporting overall demand.

Similarly, petrol consumption reflects urban mobility trends, suggesting that daily commuting and travel have remained largely unaffected.

Aviation Fuel Demand Remains Stable

Consumption of aviation turbine fuel (ATF), which is primarily used by airlines, remained largely unchanged in May at around 783,000 tonnes.

This stability indicates consistent activity in the aviation sector, with passenger travel and airline operations maintaining momentum despite broader economic pressures.

The steady ATF demand contrasts with declines seen in other petroleum products, highlighting differences in sectoral recovery and demand patterns.

Decline In Industrial Fuel Demand Signals Slowdown

Naphtha And Bitumen Usage Falls

Other petroleum derivatives recorded significant declines, pointing to weaker industrial and infrastructure activity.

Naphtha consumption dropped by 29.4%, reflecting reduced demand from the petrochemical sector where it is used as a key feedstock.

Bitumen, widely used in road construction and infrastructure projects, saw an even sharper decline of 39.4%. This suggests a slowdown in construction activity or delays in project execution during the month.

Impact On Industrial Output

The fall in demand for these products indicates that certain industrial segments may be experiencing reduced activity levels. This could be due to cost pressures, supply disruptions, or seasonal factors affecting project timelines.

Supply Constraints And Strategic Adjustments

Global Supply Disruptions

The global oil market has been facing supply tightness, partly due to disruptions around the Strait of Hormuz, a critical route for crude oil shipments.

These disruptions have limited imports of LPG and other petroleum products, prompting India to adjust its domestic supply strategy.

Boosting Domestic LPG Production

In response to the supply crunch, Indian refiners have been encouraged to maximise LPG production to offset lower imports. This move aims to stabilise domestic availability and reduce reliance on volatile global markets.

However, balancing production with demand remains a challenge given fluctuating consumption patterns.

Rising Subsidy Burden And Pricing Pressures

State-run oil marketing companies are facing significant financial strain due to pricing pressures. According to estimates, under-recoveries on LPG cylinders are around ₹700 per unit.

This means companies are selling LPG below cost, absorbing losses to maintain affordability for consumers.

Additionally, the government has reduced the number of subsidised LPG refills under the Pradhan Mantri Ujjwala Yojana from nine to four annually. This step reflects efforts to manage fiscal burden while dealing with elevated international prices.

Exports Of Refined Products Decline

India’s exports of refined petroleum products also witnessed a decline in May. Shipments averaged 937,000 barrels per day, marking a 3.6% drop compared to April, according to global analytics firm Kpler.

The decline in exports can be attributed to weaker global demand as well as tighter supply conditions. This trend indicates that international markets are also experiencing similar pressures, affecting trade volumes.

Conclusion

India’s fuel consumption trends in May present a mixed picture. While overall demand declined due to high prices and supply disruptions, essential fuels like petrol and diesel continued to show resilience.

The sharp fall in LPG and industrial fuel consumption highlights the impact of policy changes and economic pressures on specific sectors. Meanwhile, global supply challenges and rising subsidy burdens add complexity to the country’s energy landscape.

Going forward, fuel demand in India will depend on global oil price movements, domestic policy decisions, and the pace of economic activity across sectors.