Fuel prices: Why is petrol so expensive in the UK?

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Woman filling up carImage source, Getty Images

It now costs more than £100 to fill an average family car with petrol or diesel, according to the RAC.

Why is petrol so expensive?

The cost of petrol has soared in recent weeks. The RAC says the average petrol price is now 186.59p per litre, with diesel at 192.48p. That means it costs about £103 to fill a family car with petrol and £106 with diesel.

Some petrol stations are already charging more than £2 a litre.

Fuel prices have increased sharply because the price for crude oil, which is used to make petrol and diesel, has gone up.

Crude oil was cheaper at the beginning of the Covid pandemic, because many businesses temporarily closed and demand for energy collapsed.

As life returned to normal, the demand for energy increased. But suppliers have struggled to keep up and prices have risen.

Another problem is that the oil used to make petrol is paid for in US dollars. The pound is weak against the dollar at the moment, which makes fuel even more expensive.

When do petrol prices change?

When crude oil prices move, petrol and diesel prices usually follow.

But petrol retailers don't always pass on all of the reductions to their customers immediately, or in full.

The AA pointed out the pump prices should not be rising as the market had steadied a little in recent days.

"Another penny on petrol is a surprise given that wholesale costs have been level, if not lower, since the Jubilee," it said.

But the Petrol Retailers Association points out that customers bought 15% less fuel in 2021 as a result of Covid. It says retailers have to make higher profits on each litre sold to cover costs.

What impact has the war in Ukraine had?

Fuel prices were already rising before the war in Ukraine started in February - and the fallout from Russia's invasion has made things worse.

Russia is one of the world's largest oil exporters, but sanctions are being introduced.

The US has announced a complete ban on Russian oil imports. The UK is to phase out Russian oil by the end of the year, and EU leaders say they will block most Russian oil imports by the end of 2022.

This means demand for oil from other producers has increased, leading to higher prices.

And although the UK imports just 6% of its crude oil from Russia, it is still affected when global prices rise.

What difference did cutting fuel duty make?

In March, the government said it would cut fuel duty on petrol and diesel by 5p per litre for a year.

At that time, petrol had hit 167p a litre, and diesel was close to hitting 180p for the first time.

However, with current average price levels of 186.59p per litre for petrol and 192.48p for diesel, the 5p reduction has long been cancelled out.

At the time, the government also criticised retailers for not immediately passing on the fuel duty cut to customers, and it has asked the Competition and Markets Authority (CMA) to investigate.

When will prices come down?

Petrol prices are unlikely to come down until other oil producers are able to increase supplies to compensate for the loss of Russian oil.

The RAC says the government must take "drastic action", such as a further fuel duty reduction or a cut in VAT for fuel.

"This is fast becoming a national crisis for the country's 32 million car drivers, as well as countless businesses," it adds.

So far the government has ruled out specific measures to tackle fuel costs, but has put together a £37bn package to help families deal with the wider rises in the cost of living.