Why do petrol and diesel prices fluctuate?

Fuel is currently expensive and getting more so. On 21^st September 2018 average prices stood at 131ppl for unleaded petrol and 134ppl for diesel. Both fuels had increased in price for 8 of the previous 12 months, being about 13p per litre more expensive than at the same time the previous year.

Most motorists are very aware of how fuel prices have fluctuated over the past 10 years. From the eye-watering prices of 2013 when the average price for unleaded petrol reached a high of 138.8ppl, to happier times in early 2016 when it hovered around £1ppl.

This chart from The RAC Foundation shows the repeated rise and fall of fuel prices since 2009 and makes fascinating viewing.

But what causes the price of petrol and diesel to change over time?

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The cost of crude oil

Brent crude, the main international benchmark for oil will trade at different prices over time. This is related to a variety of complex factors which include:

• Global conflict and tensions – for example, US sanctions in Iran.

• Supply and demand is also significant, and the Organisation of the Petroleum Exporting Countries (OPEC) which includes Saudi Arabia and Venezuela will sometimes put limits on production, driving prices up.

• Increased production through the discovery of new sources of oil or methods such as hydraulic fracturing or 'fracking'. This is the process of pumping water and chemicals underground to break apart the rock and release available oil and gas. 'Fracking' has proved very successful in North America, though it is opposed by environmentalists.

• The strength of the pound. A weaker pound means that UK businesses have to pay more for goods they buy in foreign currencies, making oil imports which are traded in US dollars more expensive. Steve Gooding, the director of the RAC Foundation, said 'In September 2018 we were still 12-14p away from the record pump prices seen in 2012, when oil was trading as high as 120 US dollars a barrel. Currently, Brent crude is nearer to 80 US dollars a barrel, but if sterling remains weak against the dollar we could be testing those forecourt highs with oil at no more than 90-95 US dollars a barrel.'

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The difference in price between diesel and petrol

We are used to diesel being more expensive than petrol at the pump. This is because although diesel requires less crude oil to produce, it does involve a more complex refining process. However there have been times, such as around 2001 and in 2015, when the price of diesel has dropped below that of petrol.

Back in 2015 the explanation was that it was a 'supply and demand' issue – with a greater supply of diesel from refineries outside the UK which brought diesel prices down and then a greater demand for petrol in the USA. which brought petrol prices up.

Tax policy has also played a part; the rate of duty on diesel in most EU countries is lower than that on petrol. 'The UK is the highest taxer of diesel in the EU,' says Howard Cox, Founder of FairFuelUK. 'Germany prices diesel 17p less than petrol as they recognise diesel to be the commercial heartbeat of the economy.'

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Fuel duty

Fuel duty is the tax imposed by the government on fuel. It is currently fixed at 57.95ppl and VAT is then charged on both the fuel price and the duty – a form of double taxation that many motorists find particularly annoying. Fuel duty remains the same regardless of the price of fuel and has been frozen since 2011; there was talk of Philip Hammond increasing it in the 2018 Autumn budget in order to raise more cash for the NHS, but ultimately it wasn’t altered.

Howard Cox is the founder of FairFuelUK which campaigns on fuel duty and transparency at the pumps. He is vehemently opposed to any rise believing that it would be damaging to motorists, businesses and the economy. A recent survey of FairFuelUK members revealed that 75% believed that the money for the NHS should be raised in other ways, such as getting Amazon, Facebook and similar corporations to pay appropriate tax.

If you would like to support the aims of the FairFuelUK campaign, you can sign up via their site and also contribute to their Road User Opinion Survey.

This Fuel Price Calculator from the BBC website allows you to input the price you pay for fuel and will let you know how much of that is tax and also how it compares with other countries.

Where you buy your fuel – motorway service stations, supermarkets and independent traders

There are three major companies responsible for nearly all the 112 motorway service areas in the UK – Moto, Roadchef and Welcome Break. It's universally acknowledged that fuel prices are higher on the motorway, mainly because retailers see themselves as having 'a captive audience'.

When it comes to cheap fuel, supermarkets often offer good deals.

Small independent fuel stations in rural areas can't compete with the bulk-buying power of large retailers, so their fuel is likely to be more expensive. However, if you value your local fuelling station and the convenience of not having to drive further for fuel it can be a case of 'use it or lose it' as many smaller petrol stations have been closing creating 'fuel deserts' – areas where motorists have to drive a considerable distance to fill up.

To find the best value fuel, check out the PetrolPrices website and app, which can keep you updated fuel stations and prices wherever you are in the UK.

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