02/06/2020

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UK petrol and diesel prices: cost of both fuel types drops

Petrol and diesel prices fell respectively by 3p and 4p per litre in February, following...

Kia Niro long-term - petrol station

Petrol and diesel prices fell respectively by 3p and 4p per litre in February, following a drop in the wholesale cost of oil.

The average price of a litre of unleaded is now 124.02p, while diesel is down to 127.04p per litre, according to the latest RAC Fuel Watch data. This means the cost of filling up an average 55-litre family car with petrol is now £68.21, or £69.87 for diesel.

The reduction in petrol and diesel prices has been driven by a $10 (£7.73) slump in the average price of a barrel of oil over the last nine days of February.

The RAC says that of the major UK supermarkets, ASDA was the cheapest, offering petrol for 116.78p per litre – 3.5p cheaper than its nearest competitor – and diesel for 118.8p per litre – 4p cheaper than its nearest competitor.

Northern Ireland had the cheapest regional petrol costs – 122.00p per litre on average – while the north-east of England had the biggest decrease, with average pump price falling 3.25p per litre there. The same was true for diesel – Northern Ireland’s average pump price was just 124.59p per litre, while north-east England saw a 4.56p per litre decrease.

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At the other end of the scale, petrol and diesel were both most expensive in the south-east of England, priced at 125.13p and 128.31p per litre respectively.

RAC fuel spokesman Simon Williams said:  “While it is good drivers are benefiting from lower forecourt prices, in reality the wholesale price is such that the big four supermarkets, which dominate UK fuel retailing, should cut their prices again.

“At the moment both fuels are 6p a litre too expensive which means for petrol we should really be seeing a UK average of 118p. Unfortunately, we don’t think diesel will come down to the 2017 price of 119p a litre due to wholesale prices only dropping to 92p a litre briefly as a result of oil suffering its biggest weekly decline in more than four years.”

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UK petrol prices

The average UK price for a litre of petrol was 124.02p towards the end of February 2020. The cheapest supermarket to buy from was ASDA, which charged 116.78p per litre. Northern Ireland is the cheapest UK region to buy petrol in, while the south-east of England is the most expensive.

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UK diesel prices

The average UK price of a litre of diesel was 127.04p towards the end of February 2020. ASDA was the cheapest supermarket to fill up from the black pump at, charging 118.8p per litre. Northern Ireland is the cheapest UK region to buy petrol in, while south-east England is the most expensive.

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.

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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.

Finally, the smallest share of what motorists have to pay for fuel comes from the filling stations themselves. A typical fuel station profits around 2p-5p per litre, but tough competition can drive this down further. Supermarkets increasingly use fuel prices as a loss leader to tempt customers in.

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.

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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 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.

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.

However, 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.

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…