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UK fuel prices: Motorists still overcharged

03 October 2022 by Keith Adams

• Fuel prices have fallen but could be cheaper still
• Price for petrol 166p and diesel 182p per litre
• Drivers still paying almost 10p more than necessary

The RAC has decried fuel vendors after August saw the biggest drop in wholesale fuel costs; a fall which has failed to be passed onto motorists. Unleaded petrol prices lowered from 182p per litre to 166p for the first time since April 2022.

The summer has been a tough period for consumers and businesses with fleet drivers alike. Initially facing skyrocketing fuel prices after the instability of the Covid-19 pandemic, the UK is facing increasing energy bills, amid a cost-of-living crisis, as it moves into the colder months.

While diesel drivers also welcome much-needed respite – diesel prices fell around 8p per litre – all drivers will hope a further drop in fuel costs and potential redress to such bold retailer mark-up.

Senior spokesperson for the RAC, Rod Dennis said, ‘Twelve pence a litre is a lot to come off prices in a single month so there’s no doubt things could be worse, but in reality drivers of petrol vehicles are still invariably getting a raw deal at the pumps. For whatever reason, major retailers are choosing not to pass on in full the reductions in the wholesale price of unleaded they’ve been benefiting from for some considerable time now – and this continues to mean drivers are often paying much more every time they fill up than they should.’

According to the latest average figures across the UK as provided by RAC FuelWatch, petrol now stands at 169.8p per litre, while diesel is 183.7p per litre.

Will fuel fall further?

Analysts believe fuel prices continue to reduce in wholesale rates, bringing hope that pump prices will come down further following recent falls after months of record-breaking highs. Whether the new installment at 10 Downing Street will seek further measures is yet to be seen.

Fuel prices are due to a number of factors:

1. Crude oil price
2. E10
3. Delivery
4. Retailer margin
5. Fuel duty and VAT

Crude oil price

Crude oil is directly reflected in fuel prices. Indirectly, the cost of living is increasing, as the prices of goods and services have to be increased to meet the higher costs of running a business and operating logistically.

The price of crude oil has dropped to around $98 a barrel from a high of $140 earlier this year. The price of crude oil always fluctuates, since there are a number of variables that contribute to its valuation. The price of pump fuel tends to lag behind crude oil, so when this starts to drop, it can be weeks before you feel it at the pumps.

But let’s put it this way, after supply and demand, the increasing number of unpredictable natural disasters, geopolitical instability, looming global recession and Putin’s invasion of Ukraine are all major factors. Since the price of fuel is 90% determined by the cost of wholesale Brent crude, according to RAC Fuel Watch, the price of crude oil is a dominant factor in setting the fuel price.

Delivery

The logistics of getting your fuel to the refuelling stations via shipping channels and road tankers makes up 1% of the total price of your fuel. As the cost of fuel remains at unprecedented levels, recent research by MoneySupermarket reveals almost a quarter of van drivers (24%) have turned down job opportunities because petrol prices mean certain jobs are not cost effective.

It’s not clear if the recent driver shortages and logistics issues, caused by the apparent fuel shortage last year, have been passed down to the consumer. Yet, we suspect a knock-on effect has been unavoidable.

Retailer margin

The retailer’s mark-up is most contentious area, which the RAC Fuel Watch team is scrutinising heavily at the momenty. Generally speaking, it can sit anywhere from 2-10% of the fuel price per litre. In June 2022, the Competition and Markets Authority (CMA) opened an investigation, with CMA chief executive Andrea Coscelli saying it would “provide advice to government on steps that might be taken to improve outcomes for consumers across the UK”. 

Meanwhile, petrol retailers said their costs had remained high with the Petrol Retailers Association saying margins are, ‘often not enough to cover operating costs.’

Fuel duty and VAT

The tax we pay on fuel in the UK is a whopping 39% for diesel and 40% for petrol, translating to 52.95p per litre. 

Though the £0.05 per litre cut in duty in the spring budget was welcomed, not all retailers passed it on — they weren’t legally required to. Eyes will be on the new Chancellor of the Exchequer to see if there will be any further respite in the Autumn budget.

If one tax wasn’t enough, Value Added Tax (VAT) at 20% is also added on top.

E10 petrol

Changed in September 2021, E10 petrol replaced E5. Both are biofuels, where the ‘E’ refers to the ethanol in the biofuel mix. The 10 refers to the percentage of ethanol used in this plant-based synthetic, said to be more environmentally friendly.

However, a number of Parkers’ readers have reported that they are seeing significant reductions in the fuel economy of their vehicles using E10, with some switching to the more expensive Super Unleaded, which remains at 5% bio-mix, to maintain their original fuel economy.

E10 affects fuel prices as the prices for the ethanol mix make up 6% of petrol and 9% of diesel (B7) and recently the cost of the ethanol mix has risen.

What you can do to reduce your fuel bills

Driving more economically will help the situation. Accelerate more slowly, keep more distance between yourself and the car in front and make fewer short journeys. This has the same effect as compound interest, in that, it feels negligible at the time, but over a longer period can really make a difference. Shop around for fuel, remember that supermarkets aren’t always the cheapest and consider using the Petrol Prices app, which shows the pricing in your regional area.

If you’re looking to change your car, look more closely at the fuel consumption figures. While considering a switch to an electric car will still prove cheaper for running costs in terms of Miles Per Pound, be mindful of the energy increases all round to make an informed decision.

Is it worth switching to electric?

To avoid some of these charges, some motorists are opting for electric vehicles, improving their green credentials too. Alas, it doesn’t seem to be possible to avoid these increasing costs, especially for those charging at home faced with spiralling costs of domestic electricity.

As energy companies confirm huge increases on home energy bills in October 2022, and electric vehicle chargepoint providers continue to increase their kilowatt hour charges.

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