UK petrol and diesel prices: fuel should be £2 a tank cheaper

As wholesale petrol and oil prices tumble, experts say retailers are failing to pass savings on to customers

Motorists should be paying almost £2 less for a tank of petrol and diesel, but retailers have not lowered their prices to reflect falling wholesale costs, according to a new report.

Oil prices are down by 11 per cent compared to the start of October, while wholesale petrol prices for petrol have fallen by 3.5 pence-per-litre. But the average cost of a litre of unleaded was the same at the start of the month and the end, leading one motoring group to accuse retailers of having “taken drivers for a ride”.

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With the average cost of a litre of unleaded standing firmly at 130.6pence per litre, the average price of filling a 55-litre family car with petrol is £71.84. The RAC – whose Fuel Watch service produced the analysis – says this should have decreased by £1.92 to reflect falling wholesale prices.

So while last week’s budget may have seen fuel duty frozen for the ninth consecutive year, motorists are still paying over the odds for petrol and diesel. 

Asda petrol prices were reduced on average by 2.4p at the end of October, but other supermarkets did not follow suit.

In fact Tesco, Sainsbury’s and Morrisons actually all put their petrol prices up by an average of 0.6p per litre over the course of last month.

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Regional average unleaded petrol prices

RAC fuel spokesperson Simon Williams condemned retailers for not lowering their petrol prices in accordance with wholesale costs, saying: “Every motorist driving a petrol car should feel aggrieved that the price of a litre stayed the same in October when it should have fallen by more than 3p. The biggest retailers who are responsible for selling the most fuel have taken drivers for a ride.”

Williams accused retailers of “inadvertently but categorically” proving the existence of “rocket and feather” pricing – a system in which retailers make a cost saving but fail to pass it on to consumers. 

He also claimed that had the wholesale price of petrol increased, retailers would have had their customers paying more “straightaway just as they did in April and May this year”.

Finally, Williams called for retailers to drop their prices by around 3p, adding: “We strongly urge all retailers to lower their petrol prices in line with the reduced wholesale cost of unleaded; and, with the pound gaining strength against the dollar on November 1, there will be even greater scope for a cut.”

Regional average diesel prices

Meanwhile, diesel prices rose by 2.38p in their fourth consecutive monthly increase, while the cost of petrol at motorway fuel stations went down 0.3p for petrol and up 2.7p for diesel. 

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.

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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. 

However, the AA’s Fuel Price Report found that supermarket prices are getting closer and closer to prices on independent forecourts. The price gap between the Big-Four (Tesco, Asda, Sainsbury’s and Morrisons) and non-supermarket rivals has fallen below 3ppl for the first time in 12 months. 

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 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.

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.  

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Why is fuel so expensive on motorways? 

Recent figures from the RAC suggest motorists topping up at a motorway fuel station pay up to 15 pence per litre more than elsewhere. 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. 

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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.”

A new pilot scheme by the UK Government is installing electronic boards on the M5 between Bristol and Exeter that display motorway fuel prices. Similar systems can be found in countries like France, and if the trial is deemed successful, more motorways across the UK will see electronic signs posting fuel prices. This would provide some much needed price transparency for motorway drivers.

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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