UK petrol and diesel prices: both fuels hit record highs

Petrol and diesel finished October 2021 at record average pump prices of 144.35p and 147.94p per litre respectively

Kia Niro long-term - petrol station

Both petrol and diesel have now exceeded their record high average UK pump prices. The former finished October 2021 at 144.35p per litre - beating its previous high of 142.48p set in April 2021. Diesel, meanwhile, came in at 147.94p - again, beating a record from April 2012 of 147.93p.

The price of unleaded petrol rose faster in October 2021 than in any month since the year 2000, and the cost of a litre of diesel at the pumps has risen 30p per litre in the last 12 months, according to RAC Fuel Watch, while petrol has gone up 28p per litre. An average family car with a 55-litre fuel tank now costs £79 to fill with petrol and £81 to brim with diesel.

Rising bills at the pumps have been driven by the price of oil increasing from $40 a barrel a year ago to $85 now, with $90 per barrel predicted by the end of 2021 and $100 a possibility - this means fuel prices are expected to remain high at UK pumps for the foreseeable future.

Diesel bought at the pumps contains around 10 per cent biodiesel, which has also become more expensive recently, driving prices up further. As for petrol, the UK’s switch to E10 had an impact, as there is a higher ethanol content and ethanol is more expensive than petrol.

Fuel duty accounts for 57.95p per litre on petrol, while VAT is nearly 24p. Retailers have also raised their margin on petrol from 5.5ppl to 7.5ppl since April 2020 as they try to recover from the losses they saw during the Covid-19 lockdowns. Margins on diesel remain the same as they were in 2012, however.

RAC fuel spokesman Simon Williams said the increases were the highest the organisation had seen in 21 years of tracking fuel prices, describing October as “a horrible month for drivers”.

He added: “Regardless of this, the profit margin retailers are taking on each litre of petrol is greater now than it used to be prior to the pandemic, which is artificially making forecourt prices higher, particularly as VAT is charged on top. We urge the biggest retailers, in particular, to play fair with drivers and ease the burden at the pumps by lowering their margins on petrol from around 8p a litre to more normal levels.”

Williams there was a "glimmer of hope" the OPEC+ meeting on Thursday 4 November would lead to an agreement for more oil to be produced, but instead the oil-producing nations decided to stick to their current plan.

What makes up the price of UK fuel?

The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.

For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 57.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.

The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.

Finally, the smallest share of what motorists have to pay for fuel comes from the filling stations themselves. A typical fuel station profits around 2p-5p per litre, but tough competition can drive this down further. Supermarkets increasingly use fuel prices as a loss leader to tempt customers in.

Why is supermarket fuel cheaper than an independent forecourt?

Supermarket forecourts usually offer the cheapest fuel prices and this is because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they keep fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too. 

There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation. 

Why is fuel so expensive on motorways?

Motorway fuel stations argue the reason their prices are higher is that many of them are open 24 hours a day and offer more services than a regular forecourt. Motorway fuel stations also pay high rent prices for the buildings they operate.

In more remote areas, fuel is often more expensive because of the higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this doesn’t apply to motorway stations: “We can see no reason why motorway fuel should be so much more expensive. In fact, arguably it is much easier from a delivery point of view than it is getting fuel to urban filling stations.”

Why is diesel more expensive than petrol?

Although diesel and petrol are taxed the same by the Treasury, historically diesel has been more expensive than petrol, as domestic refineries have struggled to meet demand. This has forced the UK to import diesel from other countries at a greater rate than petrol. In addition, diesel prices are pushed up by the cost of the additives that go into the fuel.

Furthermore, the gap between UK petrol and diesel prices widens during the winter. The end of the US “driving season” means retailers have a surplus of petrol they can’t export, so they sell it here at a lower price. Diesel demand, meanwhile, increases across continental Europe, where the fuel is commonly used in heating oil.

However, the influx of cheap diesel from countries like Saudi Arabia has turned the tide, swinging diesel wholesale prices closer to that of petrol, and bringing the pump price down with it.

What's your view on fuel prices in the UK? Do we pay too much for our petrol and diesel? What would you do about it? Join the debate in our comments section below...

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