UK petrol and diesel prices: Soaring pump prices add to inflation woes

Fuel prices rise at the fastest rate in 30 years, as drivers face record bills to fill up


Mike Rutherford

Latest government inflation figures reveal the pain UK consumers are feeling, with prices soaring by 7 per cent in March. That’s the highest inflation rate since 1992, making the record increases in the cost of petrol and diesel even tougher for hard-pressed drivers.

Average petrol prices stood at 160.2 pence per litre in March 2022, compared with 123.7 pence per litre a year earlier, according to figures from the Office for National Statistics. It says the average price of diesel in March 2022 was 170.5 pence per litre, making both petrol and diesel prices the highest on record. “The 12-month rate for motor fuels and lubricants was 30.7%, the highest since before the start of the historic modelled series in January 1989,” the ONS says.

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Average UK petrol and diesel pump prices increased by 11p and 22p per litre respectively in March 2022, according to RAC Fuel Watch.

Petrol hit a new record average high of 167.3p per litre on 22 March and ended the month at 163.28p. Diesel, meanwhile, peaked at an average of 179.9p per litre on 23 March and ended the month at 177.29p.

Those prices mean it costs £89.80 to fill a typical 55-litre family car with petrol – £21.93 more than it did a year ago. The same car would now cost £97.51 to brim with diesel – £27.84 more than 12 months ago.

The Chancellor’s recent 5p-per-litre cut to fuel duty in the Spring budget statement, unfortunately came on a day when the price of oil rose by $6 (£4.57) per barrel. This and the fact retailers haven’t passed savings on fairly to consumers means the change has only brought about a 3.73p and 2.61p cut to petrol and diesel prices respectively. The increasing price of wholesale oil has been driven by the invasion of Ukraine and sanctions on Russia.

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“March 2022 will go down in the history books as one of the worst months ever when it comes to pump prices,” said RAC fuel spokesman Simon Williams. “Over the 22 years we have been monitoring pump prices as part of our Fuel Watch initiative, we’ve never witnessed such extreme rises in prices over such a short period.

“To describe the current situation facing drivers at the forecourt as ‘bleak’ is therefore something of an understatement.”He added: “Had the Chancellor temporarily cut VAT rather than fuel duty on fuel, as we asked him to do, the impact on pump prices would have been immediate with drivers benefitting straight away. Cutting VAT would also have gone some way towards shielding drivers from future increases – something a cut in duty just can’t do.”

Why are diesel and petrol so expensive?

Russia is one of the world’s largest producers of oil and gas, so any disruptions to its production processes has a global impact.

With Russia having launched a full-scale invasion of Ukraine and facing international sanctions, there’s potential for significant disruption to supplies. Russia produces 4.5 million barrels of oil each day, and only Saudi Arabia produces more.

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The sanctions levied against Russia so far have targeted banks and oligarchs rather than the country’s energy sector, but factors such as Germany’s postponement of the Nord Stream 2 gas pipeline will have an effect on the energy market overall. Russia also has the ability to reduce oil exports to Europe in a tit-for-tat response to economic sanctions, and experts suggest Saudi Arabian oil fields could struggle to increase production sufficiently to counter such measures.

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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.

When will fuel prices go down?

Experts predict high fuel costs will be with us for the foreseeable future, and it’s not just down to the crisis in Ukraine – energy costs have been high for the best part of a year already as demand surged as the world emerged from lockdown.

Part of the problem is down to the fact that relatively low barrel prices in recent years have put plans to drill for new reserves on hold. That’s true in Africa, the US and South America, and while the current high prices may increase interest in exploring new reserves, it can take years for new wells to come on stream in volumes required to affect the market.

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.

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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.

Recently, 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. However the fact that we get a higher percentage of diesel from Russia than petrol means the advantage has swung the other way again.

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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