UK petrol and diesel prices: Pump costs fall with further cuts likely

  • Average fuel prices begin to fall after months of rises
  • Price for petrol 175p and diesel 186p per litre
  • Threat of recession sees demand begin to drop
Petrol prices are at a record high

The cost of UK petrol and diesel continues to fall slowly as global recession fears spark a drop in crude oil prices. These changes in prices are helping to ease the burden on hard-pushed drivers who are also facing a rise in domestic energy prices in October.

We’re now seeing pump prices heading below 160p per litre in some places. A spokesperson for the RAC said: ‘Gains triggered by the invasion of Ukraine have now been cancelled out, as rising interest rates and the subsequent cooling this is expected to have on global economies, outweigh previous questions about a lack of supply caused by the conflict.’

The British Retail Consortium said its members are taking positive action. The lobby group said in a statement: ‘Retailers understand the cost pressures facing motorists and will do everything they can to offer the best value-for-money across petrol and diesel forecourts, passing on cost reductions as they feed through the supply chain.’

According to the latest average figures across the UK as provided by RAC FuelWatch, petrol is dropping, now standing at 175p per litre, while diesel still stands at 186p per litre.

Will fuel prices go down?

Analysts believe petrol and diesel prices are beginning to experience a reduction in wholesale rates, bringing hope that pump prices will begin to come down following months of record-breaking highs. There's also the possibility that once installed, the new Prime Minister may make a reduction in fuel duty or VAT when he or she takes office.

'We strongly hope pump prices have peaked for the time being and will now start to decrease in line with wholesale prices, which reduced last week,' said RAC fuel spokesman Simon Williams. 'That, however, is in the hands of retailers.'

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 $108 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 petrol and diesel 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.

It costs £15 more to fill up an average family car than it did a year ago

Retailer margin

The retailer’s mark-up is currently under scrutiny, and they sit anywhere from 2-10% of the fuel price per litre. Business Secretary Kwasi Kwarteng told petrol bosses the competition regulator is monitoring the situation. But petrol retailers said their costs had remained high with the Petrol Retailers Association saying margins are, 'often not enough to cover operating costs.'

In a letter to the industry, the business secretary said the public was, 'rightly expressing concern about the pace of the increase in prices at the forecourt.' He added that people were frustrated that the fuel duty cut, 'does not appear to have been passed through to forecourt prices in any visible or meaningful way. It is also unacceptable that different locations even within the same retail chain have widely different prices,' he concluded.

Fuel duty and VAT

The tax we pay on fuel in the UK is a whopping 39% for diesel and 40% for petrol, so motorists nationwide are watching the chancellor of the exchequer to see whether he or she will drop fuel duty from its current 57.95p per litre – where it’s been for the last 12 years. 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.

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.

Fuel at M1 Toddington services

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