UK fuel prices: cost of petrol and diesel rises "unjustifiably"

Fuel prices

Filling a tank for a 55-litre family car, such as a Skoda Superb, now costs more than £100 for petrol and diesel

Prices continue to spiral, due to supply issues, with further increases in September

Fuel prices are continuing to spiral in the UK, rising for a fourth consecutive month, with further increases expected in the coming months. 

Petrol prices increased by nearly 5 pence per litre (ppl) in September, with the average price of unleaded now standing at 157ppl. The price of diesel also increased by 8ppl, climbing from 154ppl to 163ppl.

According to the RAC, the increased prices mean it will cost drivers almost £90 to fill up a typical 55-litre diesel family car, which is £4 more expensive when compared to August, and the highest price since April this year. Filling a petrol car with a similar fuel tank will also cost on £86 on average, the highest price since December 2022. 

“Drivers are sadly really starting to suffer again at the pumps with September seeing another 8p a litre added to the average price of diesel which comes hot on the tail of a similar increase in August,” said RAC fuel spokesman Simon Williams. 

“Petrol has also gone up 11p since the beginning of August so there’s little respite whichever fuel drivers use.”

The RAC has also claimed that petrol is overpriced by around 7p a litre, with additional rises in the cost of diesel expected in the next few weeks. The organisation suggested prices were higher than they needed to be across the UK’s largest supermarkets. 

“It’s worrying that retailer margin across the UK is higher for petrol than it should be considering the big four supermarkets were told off by the Competition and Markets Authority for overcharging drivers by £900m in 2022,” the RAC said. 

“While many have voluntarily started to publish their prices ahead of being mandated to in law, we still have a situation where wholesale price changes aren’t being fairly reflected on the forecourt… In the last two weeks the wholesale cost of diesel has become 10p a litre more expensive than petrol, yet the gap at the pumps is only 5p. If retailers as a whole were playing fair with drivers petrol would be at least 7p cheaper than it is now, down to around 150p from its current average of 157p.” 

However, fuel retailers have hit back at the RAC’s claims, suggesting the pricing set by its retailers were not exploitative and largely in place due to a myriad of factors. 

“Contrary to claims made by the RAC, our members are not unjustifiably pricing petrol higher than needed. Fuel margins have been under pressure due to increased operational costs that our members have had to bear,” said Gordon Balmer, executive director of the Petrol Retailers Association (PRA).  

“To address rising labour expenses, energy costs, and the highest inflation rates in recent years and reduced fuel sales, margins have inevitably increased. Attempting to whip up public anger by suggesting otherwise is deeply irresponsible… It is disappointing to read such sensational claims in the media regarding fuel margins.”

Why are fuel prices going up?

According to the RAC’s fuel watch, the rising prices at the pumps are due to the Organization of the Petroleum Exporting Countries (OPEC) reducing supply. The weaker value of sterling is also impacting costs.

The price of crude oil has gone up nearly $12 per barrel since the start of July to around $96 now. 

This has led to the wholesale cost of fuel – the price that retailers pay – going up, which in turn has been passed on to drivers on the forecourt. Should the price surpass $100, it would be the first time to do so since August 2022.

What determines the price of fuel?

The price of petrol and diesel you buy at the pump is largely determined by the wholesale price of Brent crude oil. 

Fluctuations in the price of this, however, can take weeks to filter through to the forecourts.

The long-term cost of petrol

In July 2023, a major report from the Competition and Markets Authority (CMA) found that drivers paid on average 6ppl more for fuel last year as supermarkets took advantage of weakened competition and inflated pump prices.

CMA chief Sarah Cardell, who said supermarkets were usually the cheapest place to buy fuel and market anchors, said the rising of prices would have had “a greater impact on vulnerable people, particularly those in areas with less choice of fuel stations.”

The report found the rise was instigated by Asda  – which was also fined £60,000 for not co-operating fully with the CMA investigation – and Morrisons, the two cheapest fuel sellers, which last year each made the decision to target higher margins. 

Asda’s fuel margin target in 2023 was more than three times what it had been for 2019, while Morrisons doubled its margin target in the same period. 

Other retailers, including Sainsbury’s and Tesco, didn’t respond “in the way you would expect in a competitive market” and “instead raised their prices in line with these changes”, the CMA found.

“Taken together, this indicates that competition has weakened and reinforces the need for action,” the report added.

Diesel prices have also been slow to drop in 2023, partially down to Asda ‘feathering’ its prices (reducing them more slowly as wholesale prices fell) and other firms not responding competitively to that. 

The CMA estimated that drivers have paid 13ppl more for diesel from January 2023 to the end of May 2023 than if margins had been at their historic average.

“Competition at the pump is not working as well as it should be, and something needs to change swiftly to address this,” said Cardell.

As such, the CMA recommended a “fuel finder scheme” to give drivers access to live, station-by-station fuel prices on their phones or sat-navs. This would “help revitalise competition in the retail road fuel market.”

Cardell added: “We need to reignite competition among fuel retailers. This [scheme] would end the need to drive round and look at the prices displayed on the forecourt and would ideally enable live price data on sat-navs and map apps.”

The CMA also recommended bringing in a new monitoring body to “hold [the] industry to account.”

On this, RAC spokesman Williams said: “The fact that drivers appear to have lost out to the tune of nearly £1 billion as a result of increased retailer margins on fuel is nothing short of astounding in a cost of living crisis and confirms what we’ve been saying for many years: that supermarkets haven’t been treating drivers fairly at the pumps.

“It’s all about action now, and we very much hope the government follows through with both of the CMA’s recommendations. 

“While forcing retailers to publish pump prices is a positive step for drivers, what’s of far more significance is the creation of a fuel-monitor function within government which, we very much hope, actively monitors wholesale prices to ensure forecourts don’t overcharge when the cost they pay to buy fuel drops. 

“Without this, we fear drivers will continue to get a raw deal.”

Source: Autocar

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