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UK petrol and diesel prices: 5p tax cut means just 3p off at the pumps

UK motorists are paying an average of £1.64 for a liter of unleaded. With more pressure on diesel prices, some drivers in the UK are paying even more – the latest RAC figures report average diesel costs of £1.77 a litre.

However, many motorists have paid significantly higher prices per liter than that average, with reports of premium diesel and petrol prices breaking the £2 per liter barrier by margins. big profits in some areas before.

According to the RAC, last week’s fuel tax cut should have reduced average gas costs family car from £92 to £89 with petrol, or from £98 to £95 with diesel. Even those margins are not being met, as retailers appear reluctant or slow to pass the full tax cut.

The RAC said drivers will be “disappointed that prices don’t drop further”, but because retailers have to wait for new deliveries to buy at lower prices, it could take some time for the cuts to pass.

Even if the tax cut were to pass entirely to drivers, its ability to affect prices has been described as a drop in the ocean.

When the Chancellor of the Exchequer announced the tax cuts last week, RAC spokesman Simon Williams said: “The pump down window appears to have been well and indeed closed, with oil prices included. and so wholesale fuel costs are once again increasing, putting additional pressure on households and businesses. Just in the last week, the average price of a liter of gasoline has increased by 3.5 points and diesel by a staggering 5.5 points.

The RAC has also shown that ensuring all drivers benefit fairly and fully from fuel tax cuts depends entirely on retailers reducing prices, rather than retaining profits. Before the budget was released, the RAC called for a VAT cut, which would ensure the relief goes to drivers.

Going forward, experts told a parliamentary selection committee on March 14 that the price of a barrel of oil is likely to rise further, as countries seek to replace supplies from Russia. Nathan Piper, oil expert at financial services firm Investec told MPs: “If more stringent actions are imposed on Russia and five million bpd are actually taken off the market, then the price of oil will really not have a ceiling.”

Prime Minister Boris Johnson traveled to the Middle East on a business trip in mid-March in an effort to push countries like Saudi Arabia to expand into greater importance.

Why are diesel and gasoline so expensive?

Russia is one of the world’s largest oil and gas producers, so any disruption to its production process has a global impact.

With Russia having launched a full-scale invasion of Ukraine and facing international sanctions, there is the potential for significant supply disruptions. Russia produces 4.5 million barrels of oil per day, and only Saudi Arabia produces more.

Sanctions against Russia have so far targeted banks and oligarchs rather than the country’s energy sector, but factors such as Germany’s postponement of the Nord Stream 2 gas pipeline will have an effect. energy market in general. Russia is also likely to reduce oil exports to Europe in response to economic sanctions, and experts say Saudi Arabia’s oil fields may struggle to increase production enough to counter the sanctions. such measures.

“Opec, the oil producer, is struggling to meet production targets as crude demand rebounds following the easing of lockdown restrictions. This has pushed prices higher, with analysts warning that the ability to increase supply is limited if flows from Russia are affected by sanctions,” the Financial Times reported.

Fuel pump

What drives fuel prices in the UK?

Fuel prices can be divided into three parts; taxes imposed by the Government, costs of drilling, refining and transportation, and the profit margins of fuel companies.

For gasoline, diesel and bioethanol, the government collects about 65% of total costs through fuel tax and value added tax (VAT). The fuel tax represents a fixed fuel price – it remains the same regardless of how the overall oil price fluctuates. Currently, the Treasury adds 57.95 pence per liter of fuel through fuel tax and another 20% through VAT. How much VAT you have to pay depends on the amount of fuel you buy.

The second largest part comes from the wholesale cost of the fuel itself. Wholesale costs are a combination of currency exchange rates, global oil prices, and even domestic supply and demand.

When will fuel prices drop?

Experts predict high fuel costs for us in the near future, and it’s not just the crisis in Ukraine – energy costs have been high during the best part of a year when demand Demand surged as the world emerged from lockdown.

Part of the problem is that the relatively low barrel prices in recent years have put plans to drill for new reserves on hold. That is true in Africa, the US and South America, and while current high prices may increase interest in tapping new reserves, it could take years for new wells to come online with the block. required to influence the market.

Why is fuel at a supermarket cheaper than at an independent mall?

Supermarkets usually offer the cheapest fuel prices and this is because supermarkets hold market power. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all competing with each other, so they keep fuel prices as low as possible in the hope that when motorists arrive to fill up their tanks, they too can make a purchase. weekly groceries.

There are persistent rumors that supermarket fuel contains fewer additives and is of poorer quality than fuel from traditional currency, but there is little solid evidence for this. All fuel sold in the UK must comply with the standards set out in the Engine Fuels Regulations.

gasoline prices

Why is fuel on the road so expensive?

Highway fuel stations say that the reason their prices are higher is that many of them are open 24 hours a day and offer a wider range of services than the usual previous ones. Motorway fuel stations also pay high rents for the buildings they operate.

In more remote areas, fuel is often more expensive due to higher transportation and supply costs, but according to RAC spokesman Simon Williams, this does not apply to motorway stations: “We do not I can’t see why there’s so much road fuel. more expensive. In fact, from a distribution point of view it’s much easier than getting fuel to urban gas stations.”

Why is diesel more expensive than gasoline?

Although diesel and gasoline are taxed equally by the Treasury Department, diesel has historically been more expensive than gasoline as domestic refineries have struggled to meet demand. This has forced Britain to import diesel from other countries in a larger proportion than gasoline. Also, the price of diesel is pushed up by the cost of the additives that go into the fuel.

Furthermore, the gap between petrol and diesel prices in the UK widens during the winter. The end of “driving season” in the US means retailers have excess gas they can’t export, so they sell here at a lower price. Meanwhile, diesel demand increased on the European continent, where the fuel is commonly used to heat oil.

Recently, the influx of cheap diesel from countries such as Saudi Arabia has turned the tide, pushing wholesale diesel prices close to gasoline prices and resulting in lower pump prices. However, the fact that we get a higher percentage of diesel from Russia than gasoline means that the advantage has reversed again.

What is your view on fuel prices in the UK? Are we paying too much for our gasoline and diesel? What will you do about it? Join the debate in our comments section below…

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