Asia-Pacific refined products demand is expected to hold above May's trough and return to year-over-year growth by the end of 2026, contingent on the trajectory of the US-Iran conflict and the pace of Chinese crude buying. According to analysis from Kpler, neither outcome is achievable without India—the world's third-largest oil consumer—playing a central role.

Historical data and Kpler's implied demand model indicate that Asian products demand fell by 3.11 million barrels per day (Mbd) year-over-year in April, reaching its lowest level since October 2021. The majority of these losses stem from the broader consequences of the US-Iran conflict, which have been felt particularly acutely across Asia. Fuel and feedstock shortages—primarily LPG and naphtha into the petrochemical sector, and to a lesser extent crude into refineries—have either constrained consumption outright or triggered demand-side measures.

Beyond physical supply disruptions, curtailed mobility, higher prices, and weakening consumer confidence have dampened transport fuel demand throughout the region. China illustrates both channels of impact: alongside reduced petrochemical feedstock demand, retail price hikes appear to have intensified the shift away from oil-based transportation through accelerated fleet turnover, in-fleet NEV/PHEV switching, and price-induced modal shift toward rail and metro. Layered onto existing structural EV/LNG displacement and a construction and fiscal diesel drag, these factors drove Chinese transport fuel demand down 580 kbd year-over-year, or 6.5%, over April and May.

Preliminary June data point to a meaningful regional recovery. The interim US-Iran ceasefire and the accompanying rebound in export flows through the Strait of Hormuz—a chokepoint that typically carries roughly a fifth of global oil liquids consumption—supported refinery runs, lowered prices, and cushioned end-user demand. Kpler expects demand to continue recovering through the second half of the year and return to expansion by year-end. However, renewed escalation of hostilities puts this trajectory at risk. The latest published forecasts rest on a constructive scenario for Strait of Hormuz oil transits, assuming a phased reopening from mid-to-late July and normalization by October—a timeline that recent developments now challenge.

One factor has contributed as much to restoring fuel supply and enabling demand recovery as the ceasefire itself: China's subdued crude imports. Reduced Chinese buying has freed up cargoes for other buyers, allowing refiners elsewhere to lift runs and avert a deeper shortfall. Consequently, the recovery in Asia-Pacific demand—and the avoidance of a fall below May's trough—hinges not only on the US-Iran conflict but also on the pace at which Chinese crude purchasing normalizes.

Even under this scenario, Kpler projects 2027 demand to average just 80 kbd above 2025 levels, far below the 630 kbd projected in pre-conflict forecasts. Half of that downgrade reflects a weaker LPG outlook, particularly for China, where overcapacity persists and the olefins glut will soon re-emerge, pushing cracker and PDH run rates below the pre-conflict baseline. The conflict has also accelerated China's pre-existing fleet transition away from oil—a shift unlikely to reverse as prices normalize and one reinforced by energy-security policy, thereby lowering the medium-term transport fuel outlook.

The rest of non-OECD Asia-Pacific faces a comparable downgrade, driven by persistent affordability pressure from weakened currencies and fiscal retrenchment, compounded by subsidy reform risk and downward revisions to macroeconomic assumptions. South Asian markets hit by rationing carry structural scarring into 2027, while accelerating two- and three-wheeler electrification begins to erode the region's gasoline growth trend.

The downtrend applies to every country in the region but one: India. Indian refined products demand has held firm, with the exception of LPG, which has been weighed down in the short term by high dependence on the Strait of Hormuz and structurally by a restructured subsidy architecture heading into 2027—comprising a tighter Ujjwala quota (under the government's subsidized cooking gas program for low-income households), a retail price ratchet unlikely to fully reverse, and a costlier, longer-freight import slate following supply diversification.

Transport fuel demand in India has remained strong, largely by design, as incomplete price pass-through shields consumers from most of the cost shock. Preliminary industry data for July underscore this momentum: state refiners' diesel and gasoline sales were up over 20% year-over-year in the first half of the month, even as LPG continued to contract. Kpler expects growth to moderate through the second half of the year as price hikes, conservation measures, and imported inflation take effect, before converging toward the pre-conflict trend in 2027. Even so, India remains the primary engine of Asian demand growth—and arguably the decisive one globally.

Source: Hellenic Shipping News. Data attributed to Kpler and PPAC.