UK petrol and diesel prices have broken the 150p per litre mark for the first time since early 2023. Petrol rose by nearly 4p per litre during the middle of August, while diesel jumped by over 5p. Prices have been on the rise since Spring, following a dramatic fall from the peak of nearly £2 per litre reached in 2022. It’s the result of increased crude oil prices caused by leading oil-producing nations, particularly Saudi Arabia, cutting back production.
According to RAC Fuel Watch, the average price of a litre of petrol across the UK is 156.7p at the time of writing. That’s an increase of 5.4p since we last reported prices on 29 August. At current prices, the cost of filling a typical family car’s 55-litre fuel tank with petrol is £86.19.
Diesel has risen even higher. The current average price of 161.5p per litre is a whopping 9.3p higher than it was at the end of August. The benchmark 55-litre diesel car fuel tank now costs £88.83 to fill.
The increases have been driven by a spike in the price of Brent crude oil and consequent rises in the wholesale cost of petrol and diesel. Prices reached a peak of over $85 a barrel for much of July and August as Saudi Arabia and Russia reduced the amount oil they produce.
Rising prices
At the time of writing, prices are back on the rise again. Thanks to ongoing cutbacks in Russian and Saudi Arabian production, along with increased demand from both China and the US, the price of Brent crude oil is now $93 per barrel.
‘Drivers are in for a hard time at the pumps,’ RAC fuel spokesperson Simon Williams said.
‘Diesel is set to jump in price from its current average of 159p a litre to over 170p. But the situation with petrol is different with RAC Fuel Watch data showing that prices on the forecourt are actually too high due to retailers taking bigger margins than normal.’
‘If they were playing fair with drivers, they would be reducing their prices rather than putting them up.’
Gordon Balmer meanwhile, Executive Director of the Petrol Retailers Association that represents petrol retailers in the UK, has defended the price rises.
‘Our members operate on razor-thin margins within a highly competitive market,’ Mr Balmer said.
‘To address the mounting costs of labour, energy, and the highest inflation rates seen in years, fuel margins have inevitably increased.
‘Our members remain dedicated in their commitment to ensuring their communities are well-supplied with fuel and essential goods.’
It’s worth noting that average UK petrol and diesel prices at supermarket fuel stations are lower – 148.0p for petrol and 150.2p for diesel. The Competition and Markets Authority reported in mid-May that weak competition in a fuel sector dominated by the supermarkets is a factor in persistent high prices.
It seems the supermarkets have taken that on board: analysis by the RAC has shown that retailers are dealing with increasing wholesale costs in part by taking a hit to inflated profit margins. But it remains to be seen if that holds.
The cost of fuel remains considerably lower than the all-time peak of summer 2023, when the average price of diesel hit 199p per litre. Petrol wasn’t far behind, either. Still, any increase in motoring costs will put further pressure on household budgets being squeezed by rising inflation and interest rates.
‘While we’re fortunately not in the kind of upward price spiral we experienced last year, it feels like the better times at the pump are over for the time being. If oil producers continue to curb production then bigger forecourt price rises could be on the cards,’ said Simon Williams.
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
The price of crude oil is directly reflected in what you pay at the pump. Indirectly, the cost of living is increasing as the price of goods and services have to be raised in line with the higher costs of running a business and its associated logistical operations – deliveries and so on.
The price of crude oil has has risen from a recent low of $75 a barrel to around $85, though that's still well below the 2022 high of $140. Prices continually fluctuate, however, as there are a number of ever-changing variables that contribute to its valuation. After straightforward supply and demand calculations, the increasing number of unpredictable natural disasters, geopolitical instability, looming global recession and Russia’s invasion of Ukraine are all major factors in the price of oil. On top of that, Saudi Arabia recently announced it intends to cut oil production, which will also have a bearing on crude oil prices in the coming months.
The price of pump fuel is 90% determined by the wholesale price of Brent crude oil, according to RAC Fuel Watch. Whatever other factors may be in play, the price of crude oil is the dominant force behind the cost of fuel. Inconveniently, the price of pump fuel tends to lag behind that of crude oil, so it can be weeks before a fall in prices filters through to forecourts.
Delivery
The logistics of getting petrol and diesel to fuel stations via shipping channels and road tankers accounts for 1% of the total price of your fuel. That has a knock-on effect to business and industry, as well. Recent research by MoneySupermarket revealed that almost a quarter of vans drivers (24%) have turned down job opportunities because the high price of fuel means they are not cost effective.
It’s not clear if the on-going shortage of lorry drivers, which affects the fuel delivery sector of the haulage industry as much as any other, has had an effect on fuel prices. However, the shortages have driven up driver wages and we suspect a knock-on effect passed down to the consumer has been unavoidable.
Retailer margin
The mark-up charged by fuel retailers is the most contentious factor in the price of fuel. The RAC Fuel Watch team has been heavily scrutinising it for a long time; generally speaking, it can be anything from 2 to 10% of the price of a litre of fuel. In June 2022, the Competition and Markets Authority (CMA) opened an investigation into forecourt prices, 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.’
In May 2023, the CMA reported that there is a significant lack of competition in the fuel retail industry, which is dominated by the supermarkets in Great Britain, and that has kept prices unduly inflated. For their part, petrol retailers maintain that their own costs remain high. The Petrol Retailers Association said that margins are, ‘often not enough to cover operating costs.’
Fuel duty and VAT
The tax we pay on the base price of fuel in the UK is a whopping 39% for diesel and 40% for petrol, which translates to a total of 52.95p per litre.
Fuel duty was cut by 5p per litre in the spring budget of 2022. While that move was welcomed, not all retailers passed it onto consumers – they’re not actually legally required to. A public enquiry was called for in May 2022 by then-business secretary Kwasi Kwarteng but, in July the same year, the Competitions and Markets Authority found that, ‘on the whole, the fuel duty cut appears to have been implemented with the largest fuel retailers doing so immediately and others more gradually.’
However, the CMA did say there was a need for a deeper study into the road fuel market.
Sarah Cardell, CMA General Counsel, said: 'On the whole the retail market does seem to be competitive, but there are some areas that warrant further investigation. These include finding out whether the disparities in price between urban and rural areas are justified.
'This area of work is a major priority for the CMA and if we can help, we will. That’s why we are immediately launching a market study that will use our formal legal powers to investigate this in more depth. If evidence emerges of collusion or similar wrongdoing, we won’t hesitate to take action.' No such action has been taken.
If one tax isn’t enough, Value Added Tax (VAT) is slapped on top of the price of fuel, inclusive of fuel duty, at a rate of 20%. Mercifully, rumoured plans for a giant 23% hike in fuel duty didn’t materialise in the 2023 spring budget.
E10 petrol
In September 2021, E10 petrol replaced E5 at UK fuel stations. Both are biofuels, ‘E’ refers to plant-based ethanol, 10 is the percentage of ethanol in the fuel mix. Doubling the renewably-sourced component in petrol is said to make it more environmentally friendly.
However, a number of Parkers’ readers have reported that they are seeing significant reductions in the fuel economy of their vehicles running on E10 petrol. Some have switched to more expensive Super Unleaded – still a 5% bio-mix – to maintain their vehicles’ fuel economy.
The ethanol mix accounts for 6% of the price of petrol; the wholesale cost of ethanol has recently risen, as well. Ethanol is also used in B7 diesel fuel, accounting for 9% of its price.
What you can do to reduce your fuel bills
Driving more economically will help the situation. Accelerating more slowly is an easy win, as is making fewer short journeys. Increasing the distance between your car and the one in front helps, as well – the extra space means you can brake more gently when it slows down.
These small changes to the way you drive have the same effect as compound interest. The difference in fuel economy may seem negligible at first but, over the longer term, it adds up to make a big difference.
You should also 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 area.
If you’re looking to change your car, look more closely at fuel consumption figures. While considering a switch to an electric car will give cheaper running costs in terms of Miles Per Pound, be mindful of increased domestic electricity usage to make an informed decision.
Is it worth switching to electric?
Many motorists are switching to electric cars to avoid all the hidden costs in fuel prices. It improves their green credentials, too. Alas, it doesn’t seem to be possible to avoid increasing costs.
The cost of domestic electricity has spiralled since the start of 2022, which could hit you hard when charging an electric car at home. Though costs are expected to drop later in 2023, it’s little more than a drop in the ocean at this point. Many roadside electric car chargepoint providers have also significantly increased their kilowatt-hour charges.
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