The continued rise in fuel consumption despite higher prices highlights a key economic concept known as price elasticity of demand. | Photo Credit: ANI

Retail prices of petrol and diesel in India rose sharply in recent weeks as tensions in West Asia and the near-complete closure of the Strait of Hormuz disrupted global energy markets.

After remaining unchanged for almost four years, petrol and diesel prices were revised upwards from May 15. In Delhi, petrol prices climbed from ₹94.77 per litre on May 14 to ₹102.12 by May 25, a cumulative increase of ₹7.35 per litre. Diesel prices rose from ₹87.67 per litre to ₹95.20 during the same period, up by ₹7.53 per litre. Despite these increases, fuel consumption data suggests that demand has remained resilient.

Demand grows

Consumption of both petrol and diesel increased in May compared with the same month a year earlier, even as consumers faced higher fuel costs. Petrol consumption rose to 39.1 lakh tonnes in May 2026 from 37.8 lakh tonnes in May 2025, representing year-on-year growth of 3.38 per cent. Diesel consumption increased to 87.2 lakh tonnes from 85.9 lakh tonnes over the same period, registering growth of 1.58 per cent.

The data also show momentum in fuel demand on a month-on-month basis. Petrol consumption increased 6.13 per cent in May from April, reaching its highest level of this year so far. Diesel consumption rose 4.75 per cent during the month. Both fuels had witnessed decline in April before rebounding strongly in May.

According to Madhavi Arora, of Emkay Research, “oil demand is inelastic in the near term, it takes time to hit demand on sustained fashion. This is applicable both in the case of a price rise or price cut.”

Understanding price elasticity of demand

The continued rise in fuel consumption despite higher prices highlights a key economic concept known as price elasticity of demand. A product is considered price inelastic when changes in price have a relatively small impact on the quantity demanded.

The May data illustrate this phenomenon clearly. Fuel prices increased by more than ₹7 per litre within less than two weeks, yet consumption of both fuels continued to expand on both annual and monthly bases.

“Consumption tends to be sticky for these products. Diesel is mainly used for transport, where it is not possible to cut. Plus, extreme heat has led to higher use of diesel generator sets. In urban areas where petrol is used for private transport, absence of alternatives has kept cars moving. CNG prices too have gone up thus keeping alternatives also expensive,” explained Madan Sabnavis, chief economist, Bank of Baroda.

Published on June 19, 2026