As pump prices climb again following OPEC production cuts, the gap between petrol and diesel reaches record levels
The price difference between a litre of unleaded and a litre of diesel has broken the 20p barrier for the first time, according to RAC Fuel Watch data on average prices.
As of 12 October, diesel drivers were forking out an average of £183.94p a litre, while the average price of unleaded had climbed to £163.12p a litre, making a price difference of 20.35p.
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The return to rising prices was sparked by OPEC producer nations agreeing to cut production by two million barrels per day, with the result that the trading price of refined fuel has risen to more than $90 a barrel.
“Since OPEC and its allies agreed to reduce oil supply substantially, we’ve seen the price of wholesale diesel go up by 9p a litre and petrol by 4p a litre,” says RAC fuel spokesman Simon Williams. “This has led to the average price of diesel going up by almost 4p a litre and petrol by nearly a penny. Sadly for diesel drivers, the situation seems certain to get worse with prices heading back to 190p a litre which will add £3 to the cost of a tank at £104.5.”
Prior to the OPEC move, fuel prices had been falling back from recent record highs. The average UK pump price of petrol fell by 6.69p in September 2022, constituting the biggest monthly price drop since the year 2000. The cut saved drivers an average of £3.69 on a tank of unleaded.
That said, analysis from RAC Fuel Watch suggests drivers should have benefited from a further 10p cut, but retailers instead chose to take a larger profit margin than normal.
“Despite September seeing the sixth biggest ever drop in the price of petrol, drivers really should have seen a far bigger drop, as the wholesale price of delivered petrol was around 120p for the whole month,” said Williams. “This means forecourts across the country should have been displaying prices around 152p, given the long-term margin on unleaded is 7p a litre.”
He added: “As many drivers will have noticed, there are lots of smaller forecourts which are now selling fuel much cheaper than the supermarkets. We would urge everyone to shop around for the best deals rather than simply assuming the supermarkets are the lowest because they have been in the past.”
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What makes up the price of UK fuel?
The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.
For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 57.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.
The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.
Why is supermarket fuel cheaper than an independent forecourt?
Supermarket forecourts usually offer the cheapest fuel prices and this is because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they keep fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too.
There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation.
Why is fuel so expensive on motorways?
Motorway fuel stations argue the reason their prices are higher is that many of them are open 24 hours a day and offer more services than a regular forecourt. Motorway fuel stations also pay high rent prices for the buildings they operate.
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In more remote areas, fuel is often more expensive because of the higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this doesn’t apply to motorway stations: “We can see no reason why motorway fuel should be so much more expensive. In fact, arguably it is much easier from a delivery point of view than it is getting fuel to urban filling stations.”
Why is diesel more expensive than petrol?
Although diesel and petrol are taxed the same by the Treasury, historically diesel has been more expensive than petrol, as domestic refineries have struggled to meet demand. This has forced the UK to import diesel from other countries at a greater rate than petrol. In addition, diesel prices are pushed up by the cost of the additives that go into the fuel.
Furthermore, the gap between UK petrol and diesel prices widens during the winter. The end of the US “driving season” means retailers have a surplus of petrol they can’t export, so they sell it here at a lower price. Diesel demand, meanwhile, increases across continental Europe, where the fuel is commonly used in heating oil.
Recently, the influx of cheap diesel from countries like Saudi Arabia has turned the tide, swinging diesel wholesale prices closer to that of petrol, and bringing the pump price down with it. However the fact that we get a higher percentage of diesel from Russia than petrol means the advantage has swung the other way again.
What’s your view on fuel prices in the UK? Do we pay too much for our petrol and diesel? What would you do about it? Join the debate in our comments section below…
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