UK petrol and diesel prices: petrol stations urged to make price cuts

Retailers are pocketing bigger margins on petrol and diesel, instead of passing on the 12p per litre oil price cut

Kia Niro long-term - petrol station

Drivers in the UK paid £156million more for petrol than they should have in December 2021, after fuel retailers failed to pass savings on to consumers.

The pump price of unleaded fell by 2p per litre from 147.47ppl to 145.48ppl during the month, but a large reduction in oil prices meant retailers could have actually cut prices to nearer 135ppl had they not taken such a large profit margin, according to RAC Fuel Watch.

Diesel also dropped by just under 2ppl, from 150.80ppl to 148.92ppl, but again drivers should have been paying closer to 142ppl.

Fuel retailers usually take a margin of around 6ppl, but in December they were taking an average of 16ppl on petrol and 12.5ppl on diesel, keeping prices inflated.

As a result, it cost drivers £6 more to fill up a typical 55-litre family car with petrol than it should have (£80 instead of £74) and nearly £4 more for a diesel car (£82 instead of £78).

RAC fuel spokesman Simon Williams said: “December was a rotten month for drivers as they were taken advantage of by retailers who rewrote their pump price strategy, costing motorists millions of pounds as a result. Their resistance to cutting prices and to only pass on a fraction of the savings they were making from lower wholesale costs is nothing short of scandalous. The 10p extra retailers have added to their long-term margin of 6p a litre has led to petrol car drivers paying £5m more a day than they previously would have.”

He added: “The trouble is every extra penny they take as margin leads to drivers paying even more as VAT gets added on top at the end of the forecourt transaction. This means the Treasury’s coffers have been substantially boosted on the back of the retailers’ action. We urge ministers to push retailers into doing the right thing for consumers.”

Gordon Balmer, executive director of the Petrol Retailers Association, defended fuel retailers. He said: “December’s pump price data is less reliable because it is taken from fuel card transactions, and there have been far fewer of these transactions because of the reduction in business activity between Christmas and New Year. With pump prices falling towards the end of the month, car drivers travelling over the holiday period are likely to have benefited more than these figures suggest.”

Balmer added: “The costs of running petrol stations rose all year, with electricity up 19 per cent,  vastly reduced margins from fuel cards, increased national insurance and wage inflation.”

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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