Why are petrol prices so high?

To understand why petrol prices are currently so high, it makes sense to look at how the price we pay on the forecourt is made up. The amount we pay can be divided into two parts, the share that goes to the retailer and the share that goes to the government.

The share that goes to the retailer covers their wholesale costs for petrol or diesel, the cost of transportation, and their profit. The wholesale cost will be the biggest fluctuation as it will be at the mercy of the cost of oil, which can be affected by a wide range of factors. Transportation costs will be relatively stable, however, these have been increasing exponentially over the last few years. 

According to The Guardian, fuel prices in January 2006 were at a staggering low of 89.4p per litre on average (unleaded 95 octane) compared to today’s prices of 164.59p (RAC). In the span of 16 years that is an 84.1% increase. Profit is the only aspect the companies have full control over, though they will need to maintain a certain level to continue to operate. This, in turn, makes up the partial share of the fuel cost.

The share that goes to the government is made up of two parts. Fuel Duty and VAT. Two terms, we’re all both very familiar with, but what are they exactly? Fuel duty is a fixed cost, that stays the same regardless of the overall price, which was dropped to 52.95p in the 2022 Spring Budget after being fixed at 57.95p in 2011. VAT is charged at 20% on the retailer’s share, plus Duty. So a cost to the customer of £1.60 a litre, just over 75p per litre is going to the retailer and just under 85p is being paid in tax.

In 2020, in the early days of the pandemic, oil-producing nations decided to reduce production to maintain the price of oil as demand fell. Demand through 2021 and 2022 has bounced back quickly, and supply hasn’t caught up causing the price of oil to reach record highs. This has been made worse by sanctions on Russia after the invasion of Ukraine. Although the UK only imports around 6% of its oil from Russia, this loss of supply has exacerbated the issues with supply.

So, you’re probably asking yourself, how do I tackle this? There are quite a few small things you can do, that can add up to go a long way. And no, we’re not recommending that you fuel up on white spirit or anything else Jeremy Clarkson has supposedly ‘tried-and-tested’.

More practical ways to combat the price of fuel prices are as follows:

 

Driving 

Combining multiple smaller journeys into a longer one with short stops is a great way to reduce fuel usage. Keeping the engine warm is more fuel-efficient opposed to starting the engine from cold.

Removing excess weight from your car is another way to help fuel efficiency. 50kg of extra weight can reduce the amount of fuel used by 2%

Driving without heating or air-conditioning will help your fuel economy as both use engine power. However, using air-conditioning is more efficient than opening the windows, as this causes a lot of wind resistance, especially at speeds above 50mph.

Ensuring your tires are adequately pumped up will help with fuel consumption. Fuel efficiency can be affected by up to 10% if all four of your tires are 10 psi under the recommended level.

Driving in a higher gear is more cost-effective. By shifting up to higher gears as soon as possible while the rpm is still low (about 2,500 for petrol and 2,000 for diesel), you'll save money and fuel. However, if you drive too slowly in high gear, you can reduce your fuel economy.

If your vehicle has a stop-start system, making sure this is turned on can save a surprising amount of fuel. Claims on exactly how much varies, but it sems to be somewhere between 3 - 10%. While this doesn't seem a huge amount, it can really add up over time.

 

Reward Cards

We’ve all been bombarded by various loyalty cards in different supermarkets and petrol stations, but they can be a great way to save, or earn back, some of your fuel costs. There are plenty out there: ShellGo+, Tesco Clubcard, and Nectar Card, just to name a few. These all offer different ‘rewards’, so it is best to look into these and pick the one that is right for you. Consider factors such as driving distance, shops within your local vicinity, and accessibility, on which loyalty card provides the best offers, but also which one you are most likely to use.

 

Apps

Apps such as PetrolPrice.com, allow users to view a local area map of petrol stations within a certain parameter and their current prices. These prices are inputted by other users and are noted by the app at a specific time, which are by no means official or guaranteed due to the constant fluctuation of fuel prices. They do, however, help you find the cheapest petrol prices in your area, it is worth considering the distance you will go out of your way just to find cheaper petrol as it may be more expensive to travel further for a marginally cheaper price.

 

Alternative means of transport

In the UK we are lucky to have a variety of transport methods allowing us to travel both locally and cross country. Many larger cities have a variety of public transport options, such as buses, trains or trams. Savings can often be found on these by booking in advance or looking into different offers, such as railcards, which can save money on journeys if certain conditions are met. Park and ride schemes can be a great way to avoid sitting in traffic in city centres, save yourself from the hassle of struggling to find parking and wasting fuel. 

Cycling and walking are also great alternative options where it is safe to do so. In many cases short journeys can be quicker than driving, it is also a great way to sneak in some exercise. Many cities also have bike rental schemes that make this much easier and takes away the worry of having to lock a bike up at your destination. Electric Scooter rental schemes are also becoming more widespread, giving even more options for shorter journeys.

 

Current affairsDieselFuelPetrolPrice