Why are petrol prices rising again? What’s driving fuel costs up and when they could come down?

Fuel prices ^[1] in the UK have gone up to the highest they’ve been since the start of the year after dropping in early summer.

The average price for unleaded petrol ^[2] is almost 152p while for diesel ^[3] it’s 154p as of 30 August, according to RAC FuelWatch.

People are already struggling with the cost of living crisis ^[4] and mortgage interest rate rises ^[5], plus London motorists ^[6] are facing charges from the rollout of the Ultra Low Emission Zone ^[7] – with several cities elsewhere around the country launching new clean air zones with hefty fees.

So what has caused the price hike ^[8] and how long will this volatility last? Here is everything you need to know.

How much have the prices gone up?

Through the start of 2023, we were seeing pump prices come down, but this increase is a rise of 10p since July.

So far this month petrol has gone up 6p and diesel 7p a litre. Petrol is at its highest since the start of the year and diesel since mid-May.

RAC fuel spokesman Simon Williams said: “This is bad news for drivers as it’s added more than £3 to a petrol fill-up and £4 to a tank of diesel.”

For petrol, the average at the supermarket pumps is 148.50p while at motorway services it’s 174.09p – a substantial difference of 25.59p.

For diesel, the supermarket are charging 150.66p and motorway pumps 175.77p – a similar figure of 25.11p.

What determines the price of fuel?

The price of fuel is determined by the cost of fuel itself (which is made up of the wholesale price, the cost of distributing the fuel and fuel companies’ profit margins), fuel duty and VAT.

The cost of fuel is affected by the global price of crude oil, supply and demand for crude oil and the pound to dollar exchange rate, as refined fuel is sold in US dollars. Increases in recent years have been sparked by distribution issues caused by the Russia-Ukraine conflict.

The retailer margin can vary which is is why local fuel station prices can differ so greatly.

What’s causing this latest surge?

The main driver of these higher pump prices has been the increase in the oil price.

AA spokesman Luke Bosdet told i: “This is primarily due to production cuts by Saudi Arabia ^[9] and Russia ^[10] to prop up the value.

“There has also been refinery disruption in Europe ^[11] to make things worse, and of course the track of hurricanes heading towards the southern US is always a concern if it leads to oil and fuel production being shut down.

“Market reports yesterday were highlighting potential interest rate increases in the US and the slowdown in China ^[12] as possibly pushing oil in the other direction – such is the volatility of the oil market.”

What could happen next with fuel prices?

Mr Williams added: “Unfortunately, things may well get worse still as last week saw the average wholesale price of unleaded reach its highest level since November while diesel climbed to a price last seen in March.

“Both went on to lead higher pump prices than drivers are currently paying on the forecourt.”

But Mr Bosdet suggests the seasons may help. Over the pond, each spring, gas stations shift from selling winter-grade fuel to summer-grade fuel, which ignites a hike in price, because summer-grade fuel is more expensive to produce.

He notes that the recent rise in oil costs, leading to the wholesale petrol and diesel price surge, was reflected pretty rapidly at the pumps.

In the spring budget, the Prime Minister announced a 5p per litre drop on duel duty – from 57.95p to 52.95p. It was only the second time in 20 years that fuel duty has been lowered and it will remain until March 2024 – which of course means prices could go up next year.

How can I get the cheapest fuel?

It’s worthwhile considering the difference between supermarket and motorway pumps. To put it into context, a 100-mile journey for the average petrol car (with an mpg of 36) filling up on the motorway would cost £22.00 and at a supermarket it would be £3.84 cheaper. For the average diesel car (43 mpg), the saving would be £2.66.

PetrolPrices.com ^[13] is a free mobile app for comparing fuel prices across the UK. The website promises you could save £240 a year by using it.

You must register, then you can enter any postcode or town and it lists the prices at your local fuel stations. If you use a loyalty card, you can use the site’s filters to find specific brands.

There’s also the Fuel Finder feature in the myRAC app which you can download from the App Store or Google Play ^[14]. The firm says you can save yourself up to 6p a litre every time you fill up.

You don’t have to be an RAC member to use it. All registered users can quickly search within two, five or 10 miles to make sure they always get the cheapest fuel around.

Why are fuel retailers under scrutiny?

In July, an investigation ^[15] found Asda and Morrisons had increased their profit margins by charging higher prices and not reducing them as quickly when oil prices – cited as the main reason for expensive fuel costs – came down. Rival supermarkets, including Tesco and Sainsbury’s, followed similar pricing patterns.

Earlier this month, Energy Secretary Grant Shapps ^[16] warned fuel retailers he will “call out any foot-dragging” over the sharing of pump price data.

He said households are “not getting a fair deal on fuel and are being overcharged”.

The Competition and Markets Authority (CMA) is planning to launch an interim voluntary system for retailers to publish fuel prices by the end of the month.

Mr Bosdet added: “Petrol retailers are under scrutiny from the CMA and the Government. Any delay in passing on lower road fuel costs to consumers will simply heat up the statutory scheme that will give the UK pump price transparency. That has to go through Parliament this autumn and the road fuel trade is being watched very closely.”

References

^{^} Fuel prices (www.inews.co.uk)
^{^} petrol (www.inews.co.uk)
^{^} diesel (www.inews.co.uk)
^{^} cost of living crisis (www.inews.co.uk)
^{^} mortgage interest rate rises (inews.co.uk)
^{^} motorists (inews.co.uk)
^{^} Ultra Low Emission Zone (inews.co.uk)
^{^} price hike (inews.co.uk)
^{^} Saudi Arabia (inews.co.uk)
^{^} Russia (www.inews.co.uk)
^{^} Europe (inews.co.uk)
^{^} China (www.inews.co.uk)
^{^} PetrolPrices.com (www.petrolprices.com)
^{^} download from the App Store or Google Play (rac.co.uk)
^{^} an investigation (inews.co.uk)
^{^} Grant Shapps (inews.co.uk)