Page 4 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

Impact of economic factors on Oil & Gas sector in India

Strong GDP growth supports petroleum demand

• Strong GDP growth is expected to support petroleum demand in India, with real GDP growth
estimated at 7.6% in FY2025–26 and projected at around 6–7% in FY2026–27. Economic
expansion, particularly in manufacturing, construction, infrastructure, freight and logistics, is
likely to sustain demand for transportation and industrial fuels. This trend is already reflected in
petroleum consumption, with HSD consumption increasing from 7.4 MMT in July 2025 to 8.1
MMT in July 2026, while MS consumption rose from 3.5 MMT to 3.8 MMT over the same period,
indicating stronger demand for diesel and petrol. ATF consumption stood at 0.7 MMT in July 2026,
supported by continued growth in air travel.

• Overall, sustained economic activity and infrastructure-led investment should provide a positive
demand environment for India’s oil & gas sector, particularly for transportation fuels and other
petroleum products.

Impact of Higher Energy Prices on India’s Oil & Gas Sector

• The sharp increase in wholesale energy prices during July 2026 has significant implications for
India’s oil and gas sector. Fuel and Power WPI inflation stood at 20.05 per cent, while inflation
in mineral oils was 32.40 per cent and crude petroleum and natural gas was 26.99 per cent. On a
cumulative basis, crude petroleum and natural gas inflation reached 44.62 per cent during April -
July 2026–27. These trends indicate sustained cost pressures in the energy sector and have
different implications across the oil and gas value chain.

• For upstream oil and gas producers, higher crude and gas prices are generally positive as they can
improve realizations, revenues and operating cash flows. The stronger price environment also
improves the economics of domestic exploration and production, particularly for offshore,
deepwater and technically challenging fields. This could encourage greater investment in
exploration, enhanced recovery and development of domestic hydrocarbon resources, supporting
India's objective of reducing dependence on imported energy.

• At the macroeconomic level, elevated crude prices increase India's oil import bill, potentially
widening the trade deficit and creating pressure on the Indian rupee. India’s crude oil imports
rose from 9.7 USD bn in July 2025 to 13.7 USD bn in July 2026. A weaker rupee can further increase
the domestic cost of imported crude and LNG, creating an additional inflationary channel. Higher
energy costs can also raise transportation, logistics and manufacturing costs, thereby affecting
the wider economy and potentially influencing monetary-policy conditions.

Impact of Index of Eight Core Industries

The Index of Eight Core Industries grew by 5.4 per cent in July 2026, with strong growth in electricity,
cement, coal, steel and refinery products. This is broadly positive for the oil & gas sector because
infrastructure, construction and industrial activity are important drivers of petroleum-product demand.
Refinery-product output increased by 2.7 per cent, indicating continued operating activity in the refining

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