UK fuel prices: supermarkets taking unfair share

Filling the tank of a 55-litre family car, such as a Skoda Superb, costs nearly £90 for diesel, says the RAC

Petrol prices continue to decrease, but forecourts should be charging less still, says the RAC

Prices for petrol and diesel have dropped for the second month in a row in December to under 147 pence per litre (ppl) on average, but drivers are still losing out because of greedy supermarket pricing.

Average petrol prices dropped by 6ppl, while diesel fell 5ppl to 149.2ppl. But the RAC estimates that supermarkets could be charging around 132ppl, not their current 137.63p.

The motoring organisation pointed out that independently run forecourts, such as Grindley Brook in Whitchurch, Shropshire, significantly undercut these giant retailers, sometimes by as much as 6ppl. 

RAC fuel spokesman Simon Williams said: "We continue to call on the biggest retailers to play fair with drivers and lower their prices. In spite of the current overcharging, we strongly hope that 2024 will be the year when drivers finally get to see fairer pump prices."

The wholesale price of petrol currently sits at 104ppl, meaning even with a margin of 10ppl, unleaded could cost an average of 137ppl, instead of 140.6ppp.

The Petrol Retailers Association (PRA) argued that it was “doing all it can to ensure that motorists have access to the best information possible”. 

“It's disappointing that, as we work constructively with the relevant government departments to find a solution, we're forced to constantly correct the record,” said Gordon Balmer, executive director of the PRA, in a statement sent to Autocar. 

"Our independent retailers operate in a dynamic market, consistently striving to provide fair and competitive prices to consumers.

"The PRA has offered its full support and cooperation to the Competition and Markets Authority as it develops its fuel-price transparency scheme to help motorists find the best deals available to them." 

The PRA added that its “retailers remain steadfast in their commitment to ensuring customers receive the best deals possible”.

*Northern Ireland pricing*

For several months Northern Ireland has provided the lowest prices for both petrol and diesel. Petrol is 5ppl cheaper than the UK average at just 135.28p and diesel is 5ppl less at 144.2p. 

Both fuels bought in Northern Ireland are also cheaper than the averages charged at the big four supermarkets – 137.63ppl for petrol and 145.89ppl for diesel.

Simon Williams added: “It’s clearly good news that both petrol and diesel came down substantially in December. While we’re starting the year paying much less at the pumps than we have done, it’s still galling to know that drivers aren’t being charged a fair price in comparison to Northern Ireland where the very same petrol and diesel is at least 5p a litre cheaper.

“It’s surely impossible to argue that competition is working properly if prices are so vastly different in two parts of the UK."

*What determines the price of fuel?*

The price of petrol and diesel you buy at the pump is largely determined by the wholesale price of Brent crude oil. 

Fluctuations in the price of this, however, can take weeks to filter through to the forecourts.

The price of crude oil has gone up nearly $12 per barrel since the start of July to around $96 in October and now fallen to around $78.

*The long-term cost of petrol*

In July 2023, a major report from the Competition and Markets Authority (CMA) found that drivers paid on average 6ppl more for fuel last year as supermarkets took advantage of weakened competition and inflated pump prices.

CMA chief Sarah Cardell, who said supermarkets were usually the cheapest place to buy fuel and market anchors, said the rising of prices would have had “a greater impact on vulnerable people, particularly those in areas with less choice of fuel stations.”

The report found the rise was instigated by Asda  – which was also fined £60,000 for not co-operating fully with the CMA investigation – and Morrisons, the two cheapest fuel sellers, which last year each made the decision to target higher margins. 

Asda’s fuel margin target in 2023 was more than three times what it had been for 2019, while Morrisons doubled its margin target in the same period. 

Other retailers, including Sainsbury’s and Tesco, didn't respond “in the way you would expect in a competitive market” and “instead raised their prices in line with these changes”, the CMA found.

“Taken together, this indicates that competition has weakened and reinforces the need for action,” the report added.

Diesel prices have also been slow to drop in 2023, partially down to Asda ‘feathering’ its prices (reducing them more slowly as wholesale prices fell) and other firms not responding competitively to that. 

The CMA estimated that drivers have paid 13ppl more for diesel from January 2023 to the end of May 2023 than if margins had been at their historic average.

“Competition at the pump is not working as well as it should be, and something needs to change swiftly to address this,” said Cardell.

As such, the CMA recommended a "fuel finder scheme" to give drivers access to live, station-by-station fuel prices on their phones or sat-navs. This would “help revitalise competition in the retail road fuel market.”

Cardell added: “We need to reignite competition among fuel retailers. This [scheme] would end the need to drive round and look at the prices displayed on the forecourt and would ideally enable live price data on sat-navs and map apps.”

The CMA also recommended bringing in a new monitoring body to “hold [the] industry to account.”

On this, RAC spokesman Williams said: “The fact that drivers appear to have lost out to the tune of nearly £1 billion as a result of increased retailer margins on fuel is nothing short of astounding in a cost of living crisis and confirms what we’ve been saying for many years: that supermarkets haven’t been treating drivers fairly at the pumps.

“It’s all about action now, and we very much hope the government follows through with both of the CMA’s recommendations. 

“While forcing retailers to publish pump prices is a positive step for drivers, what’s of far more significance is the creation of a fuel-monitor function within government which, we very much hope, actively monitors wholesale prices to ensure forecourts don’t overcharge when the cost they pay to buy fuel drops. 

“Without this, we fear drivers will continue to get a raw deal."