Petrol cost have soared in recent months and pushed inflation to its highest level for 40 years with protesters targeting motorways in Wales, Devon and Scotland calling for a cut in fuel duty.
So why is Petrol so expensive?
Petrol costs have reduced slightly after the record highs at the beginning of July when prices reached 192p and 199p for Diesel.
Average pump prices are now around 188p per litre for petrol and 196p per litre for diesel. Even with this slight drop in price, this is still significantly higher than they were at the beginning of the year.
Prices have increased sharply because the price of crude oil, which is used in the manufacture of petrol and diesel. Crude oil was significantly cheaper at the beginning of the pandemic as many businesses temporarily closed and the demand for energy collapsed.
Post pandemic and with life returning to some normality, the demand for energy has increased. Suppliers have struggled to keep up with demand and prices have risen.
Another problem is crude oil in traded in US dollars. The pound has been weak against the dollar, making fuel more expensive.
Why do Fuel prices fluctuate?
When crude oil prices move, petrol and diesel prices usually follow, unfortunately petrol retailers don’t always pass on all of the reductions to their customers immediately, or in full.
Motoring organisations the AA and RAC have accused petrol retailers of keeping prices unnecessarily high and taking extra profits whilst 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.
Has the war in Ukraine had an impact?
Fuel prices were already on the rise before the war in Ukraine broke out in February, however 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.
Although the UK imports just 6% of its crude oil from Russia, it is still affected when global prices rise. This means demand for oil from other producers has increased, leading to higher prices.
What difference did cutting fuel duty make?
In March, the government announced 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 argues that other countries have cut fuel duty more than the UK, and is calling for a reduction of at least 20p.
The Road Haulage Association trade body wants the government to return the fuel duty part of the pump price to “essential users” such as hauliers and coach operators.
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.
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