Petrol and diesel prices have reached record highs, as the cost per barrel of oil skyrockets. But is there light at the end of the tunnel, or do drivers need to face the fact they will be paying almost £2.00 a litre in weeks to come?
There was a time when driving past a fuel station meant reading the price on the big sign and accepting it was the same as the previous day, the previous week or even the previous month. In the last few days, however, UK motorists have seen prices jump by around 15p a litre within a 48-hour period.
This is being caused by high prices for Brent crude oil, which most petrol and diesel is refined from. Prices of this are high due to fuel companies reducing or cutting reliance on Russia, one of the biggest oil producers in the world. Other countries are stepping up efforts to increase supply to meet demand, but this does have a knock-on effect.
Will petrol and diesel prices drop?
Eventually, the cost of petrol and diesel may drop, but maybe not for a few weeks yet. While the price of oil is now around $30 lower than at its highest, petrol and diesel retailers are not yet passing this saving on to the consumer. It is not greed that is creating this decision however, but business.
Fuel companies are charging their latest prices based on the price they paid for the oil being used at the time of purchase. Although these prices are lower now, they are still working though the hundreds of thousands, or even millions of litres they bought in during February and early March. It is also likely that they bought more than usual, in concern over potential supply shortages as they cut ties with Russia.
Therefore, the price drivers are paying now is based on the price of oil back then. Companies are always buying and refining oil into fuel, so the lower cost-per-barrel prices will filter into savings at the pumps – but maybe not for some time.
“Rising fuel prices have put further pressure on margins, and pump price increases are necessary to ensure that forecourt operators can continue serving their communities” stated Gordon Balmer, Executive Director of the Petrol Retailers Association (PRA).
There is of course a fear that some companies will take advantage of drivers being ‘acceptant’ of higher prices, delaying the savings and therefore increasing profits for a time. According to the RAC Foundation, currently companies only make between 2p and 6p a litre in profit, the rest going on wholesale costs, delivery, and taxes.
Should this be the case, the government is being asked to step in, and ensure that savings are passed down to drivers where possible. With the current cost of living rising, many feel it is the least they could do. There is also a petition asking for a cut in fuel duty currently to help reduce costs at the pump.
“We have noted calls from some quarters calling on the government to either reduce fuel duty or cut the level of VAT on fuel in an attempt to reduce the burden for consumers,” added Balmer. “The PRA would support this move to help our customers.”
Yet it is unlikely such action will take place. The increase in prices of fuel is playing into the government’s hands. In 2030, the sale of new petrol and diesel vehicles will be banned, with hybrid and plug-in hybrid (PHEV) registrations ending in 2035. Should fuel prices stay high, there is the argument that more drivers will consider an electric vehicle, reducing their costs of driving through charging at home. While the government will lose on fuel duty in this way, they would also lose out if it was cut, meaning they can at least achieve one goal – lowering of air pollution.