UK petrol and diesel prices: fuel costs rise 3p per litre in July

Petrol and diesel prices both rose by around 3p per litre in July, increasing the price of an average fill-up by roughly £2


Petrol and diesel pump prices in the UK both rose by around 3p per litre in July, according to the latest RAC Fuel Watch figures.

Unleaded increased from 111.06p to 114.27p per litre, meaning filling up an average 55-litre family car now costs £62.85. Diesel, meanwhile, jumped from 115.09p to 118.04p per litre, so 55 litres would cost £64.92.

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At the big four major supermarkets – ASDA, Morrisons, Sainsbury’s and Tesco – the average price of a litre of petrol rose 3.5p to 109.14p, while diesel was up 3.33p to 113.52p. Despite the increases, filling up with petrol or diesel at a supermarket is 5p and 4p per litre cheaper respectively.

Regionally, London was the most expensive place to buy petrol, while south-east England was for diesel.

RAC fuel spokesman Simon Williams said: “July was another bad month for drivers with a 3p a litre rise in the price of fuel. This means petrol’s 7p a litre more expensive than it was at the end of May and diesel is 6p more, something drivers will no doubt have noticed as each complete fill-up is costing almost £2 more.

“The higher prices at the pump have been driven by the cost of oil increasing steadily to around $42 a barrel from a low of $13.21 in April. But drivers may well be given some respite as oil producers are planning on ramping up production despite the risk of renewed lockdowns around the world. This could easily lead to supply outstripping demand and therefore a reduction on the forecourts of the UK.

“There is some scope for retailers to already be reducing their prices. If they play fair with drivers we ought to see 2p a litre come off the price of unleaded and nearer 4p come off diesel.”

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.

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Finally, the smallest share of what motorists have to pay for fuel comes from the filling stations themselves. A typical fuel station profits around 2p-5p per litre, but tough competition can drive this down further. Supermarkets increasingly use fuel prices as a loss leader to tempt customers in.

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.

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.

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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.

However, 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.

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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