Cheap fuel: how long will drivers benefit?

Cheap fuel

Drivers are currently enjoying cheap fuel at the pumps but how long will it last? (Picture © Portland)

Cheap fuel that appeared to be getting ever cheaper has been one of the more welcome features of summer 2015. Diesel fell to being cheaper than it’s been for five years. And it became cheaper than petrol for the first time in 14 years. So are cheap fuel prices really here to stay?

Cheap fuel: Why did diesel prices fall so much?

The cost of fuel – whether it’s petrol or diesel – is linked to a variety of factors. Motor fuel’s raw material, crude oil, is traded in dollars. So the relationship between the pound and dollar is important. Currently sterling is strong meaning a pound will buy more dollars. The wholesale price – the cost of fuel to filling stations – is vital too. This is low at the moment because Saudi Arabia has been increasing diesel production for Europe at the same time as European demand has dwindled. As a result, over the past year, the price of crude oil has virtually halved.

Cheap fuel: What do price falls mean to drivers?

Between August 2014 and August 2015, the price of fuel has fallen by around 23p per litre. If a driver puts 55 litres of diesel into a car at the current average price of around £1.09 a litre, it will cost £59.95. If that fuel is £1.31 a litre, as it was a year ago, the fill up would cost £72.05 or £12.10 more per fill up.

Cheap fuel: Will it stay that way?

Brian Madderson, head of trade body the Petrol Retailers Association, said: “If I had to bet on which would come first: an increase in interest rates or a rise in fuel prices, I’d say the latter. I can’t see the low prices continuing.” But with the Chinese economy struggling and demand for oil falling there, along with the end of sanctions against Iran, supply looks set to continue outstripping demand. However, the world of fuel prices is a complex one and at the start of September 2015, the price of oil per barrel was very unstable.

Cheap fuel: How quickly do filling stations pass price changes on?

Fuel retailers have been criticised for being slow to pass price cuts onto customers. Howard Cox from campaigner FairFuelUK said: “The Petrol Retailers Association admitted to FairFuelUK that its members do delay beneficial price cuts when their wholesale purchase prices fall, in order to stay in business.”

Cheap fuel: What the filling stations say

Brian Madderson from the Petrol Retailers Association (PRA) said: “Filling stations have to pay for their fuel on delivery. If a retailer has a fuel delivery one day, then the wholesale price of fuel falls the next day, they might have five days before taking a new delivery. For many, the profit margin isn’t sufficient to sell that fuel for less than they paid for it.”

Cheap fuel: What about tax?

In the UK we pay more tax on fuel than any other country in Europe. Currently 66 per cent of the price of a litre of unleaded goes to the Government. This is despite a four-year freeze in the amount of duty levied at the pumps. It compares with 52 per cent in Spain. Campaigners like Howard Cox are angry that the wholesale pre-tax price of fuel in UK is among the cheapest in Europe.

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