After record highs in 2022, petrol and diesel prices look set to come down this year

Mike Rutherford

The average price of petrol has dipped below £1.50 per litre for the first time since Russia invaded Ukraine in February 2022. The average diesel price remains comparatively high at 173.16 pence per litre according to figures from the Department for Business, Energy and Industrial Strategy (BEIS).

Petrol now costs £1.49 on average across the UK, marking a decrease of over 40p from when prices hit record highs in July 2022. Diesel has been slower to come down, resulting in a record gap to petrol prices of 23p. Diesel still sits 24.5 pence higher than this time last year and petrol is only 5.2 pence higher than January 2022. 

• How to find the cheapest petrol and diesel near you

The autumn 2022 fuel pricing was pretty grim for UK motorists as OPEC oil producing nations agreed to cut production by two million barrels per day, with the result that the trading price of refined fuel rose to more than $90 a barrel – it is now $75 a barrel.

The government cut fuel duty by 5p last February and analysis from RAC Fuel Watch suggests drivers should have benefited from further 10p cut, but retailers instead chose to take a larger profit margin than normal. The government is set to end the discount in March 2023. 

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 52.95 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.

Why is supermarket fuel cheaper than an independent forecourt?

In the past, supermarket forecourts have usually offered the cheapest fuel prices and this was 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.

• Petrol or diesel: which should you pick for your next car?

In more recent times fluctuating fuel prices have caused some analysts to question whether supermarket fuel really is cheaper. In September 2022, RAC fuel spokesman Simon Williams explained that, “there are lots of smaller forecourts which are now selling fuel much cheaper than the supermarkets. We would urge everyone to shop around for the best deals rather than simply assuming the supermarkets are the lowest because they have been in the past.”

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.

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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 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.

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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