Drivers will be relieved at the news that Fuel Duty has been frozen in the 2024 Autumn Budget Statement. It builds on the good news at the fuel pumps as UK petrol and diesel prices have dropped by 6.5p per litre since AugustP, saving motorists £3.50 per fill-up in recent months.
A litre of unleaded averaged 141.3p but fell to 134.9p, at the end of October, while diesel has dropped from 146.0p to 139.6p. This marks a significant decrease, especially from the recent high point of July 2022 when petrol prices soared to nearly 1.92p per litre due to a surge in oil prices following Russia’s invasion of Ukraine.
For drivers, filling up a typical family car with a 55-litre fuel tank now costs around £74 for petrol and a diesel tank is just under £77.
RAC head of policy Simon Williams said of the fuel duty freeze: ‘Drivers will breathe an enormous sigh of relief after all the speculation that the 5p cut would be scrapped at the same time as pushing duty up beyond the long-term rate of 57.95p.
‘It’s good to see the Government firmly recognising the importance of the car to millions of households up and down the country. Eight-in-10 drivers tell us they are dependent on their vehicles for the journeys they need to make, while 70% of commuters who live in rural areas have no other feasible alternatives to get to work beyond taking the car.’
With the current wholesale price of petrol at 99p per litre and diesel at 103p, the RAC expects pump prices to drop further over the next two weeks by up to 4p per litre, as retailers begin passing on these savings.
Drivers filling up at one of the major supermarkets are already seeing savings of around 3p per litre, with petrol priced at 131.9p (compared to the UK average of 134.8p) and diesel at 136.5p.
The Chancellor also announced Fuel Finder. Described as an ‘open data scheme for fuel prices and a market monitoring function’ it will provide consumers with increased transparency and allow them to find the cheapest fuel prices local to them. Set to be implemented by the end of 2025, the government predicts it could help reduce costs by 1-6p per litre, a huge saving for motorists.
Big differences in cheapest, most expensive fuel
The RAC’s data shows that there are some massive discrepancies between the cheapest and most expensive prices charged by certain retailers. Across Asda’s forecourts, there’s a whopping 18.0p gap between its cheapest (123.7p) and most expensive (141.7p) petrol, and a 15.0p difference in diesel prices – a low of 129.7p and a high of 144.7p. Though it’s worth pointing out Asda’s portfolio includes several hundred non-supermarket locations.
By contrast, Morrisons has the most consistent prices. There’s a 9.2p difference in its petrol prices (126.7p low and 135.9p high) and 8.2p in its diesel prices (131.7p low and 139.9p high). Though it’s worth noting that Sainsbury’s has the cheapest petrol and diesel, at 121.9p and 127.9p.
Of the other fuel retailers, the RAC says that Shell has the highest average fuel prices – 136.7p for petrol and 141.0p for diesel. BP prices are very nearly as high. Esso is by far the most consistent retailer, having no differences in prices for both petrol and diesel (128.9p & 133.9p)
Regional price variations persist across the UK, as well, particularly between Great Britain and Northern Ireland. The average price of petrol in NI is 3.5p less at 135.4p, while diesel is 6p less at 137.6p.
Until such time as Fuel Finder is up and running, you can get live fuel prices in your area on the myRAC app.
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 UK petrol and diesel prices. 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 dropped to a recent low of $72 (£55), though that's still well below the 2022 high of $140 (£107). 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
Fuel duty and VAT play a big role in what you pay at the pump. Fuel duty is a fixed rate of 52.95p per litre after the 2022 cut, and it’s added straight to the cost, regardless of fuel price fluctuations. Then there’s VAT, charged at 20% on top of the combined fuel price and duty.
This double whammy means any change in fuel duty not only bumps up the base price but also the VAT, amplifying the overall impact on your wallet. Even a small tweak to fuel duty can see prices climb noticeably, making these taxes a key driver of what you’re shelling out to fill up
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?
As more motorists turn to electric vehicles (EVs) to escape the hidden costs of traditional fuel, the allure of improved environmental credentials is undeniable. However, the question remains: is it truly a cost-effective choice?
Since 2022, domestic electricity prices have skyrocketed, placing a financial strain on homeowners charging their EVs at home. By 2024, these costs have continued to rise, challenging the notion that switching to electric can help avoid escalating expenses.
If you're weighing your options and uncertain whether an electric vehicle is right for you, check out our comprehensive guide on Hybrid vs. Electric vs. Petrol vs. Diesel Cars. This can help you assess the best choice for your driving needs and financial situation.
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