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

  • Published
Related Topics
Woman filling up car at petrol pumpImage source, Getty Images

Soaring petrol costs have pushed inflation to its highest level for 40 years.

The rate at which prices are rising jumped to 9.4% in the 12 months to June, up from 9.1% in May, according to the Office for National Statistics (ONS).

Some protesters targeted motorways in Wales, Devon and Scotland to call for a cut in fuel duty.

Why is petrol so expensive?

Petrol costs have dropped back slightly from the record highs seen at the beginning of July, when prices reached 191.53p for petrol and 199.07p for diesel.

Average pump prices are down to 188.88p per litre for petrol and 196.37p per litre for diesel.

But even at this level, current prices are still significantly higher than they were at the start of the year.

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 has been weak against the dollar, making fuel even more expensive.

Why 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 and RAC motoring groups have accused petrol retailers of keeping prices unnecessarily high and taking extra profits.

The Petrol Retailers Association, which represents independent retailers, 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 is facing sanctions as a result of its actions in Ukraine.

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

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

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, average prices have continued to rise and 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 petrol costs come down?

Pump prices have dropped slightly after falls in the price of oil pushed wholesale prices down. However, they still remain much higher than they were before the Ukraine war.

Prices are unlikely to come down significantly more until other oil producers are able to increase supplies to compensate for the loss of Russian oil.

The campaign group FairFuelUK was behind recent "go slow" protests on motorways across the UK. It says argues that other countries have cut fuel duty more than the UK, and is calling for a reduction of at least 20p.

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.