UK fuel prices: price rises resume after months of decline

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

Petrol and diesel prices increased once again in January, with a number of factors taking hold of the industry

Prices for petrol and diesel are back on the rise, with the cost of filling an average family car increasing by as much as £2 per tank in just three weeks, new figures from the RAC’s fuel watch have suggested. 

Over the last three weeks, the cost of petrol increased by 3.2 pence per litre to t total of 143.4p, while diesel jumped up by 4 pence per litre to 152p. 

The rise comes despite the recent overall trend for petrol prices, which dropped over the last three months to below 140 pence per litre for the first time since October 2021. Retailers have been trading above $80 a barrel for the last four week, having traded “well below that” for the previous seven weeks.  

The RAC says the price increases are due to rising oil prices, plus the impact of attacks on vessels travelling in the Red Sea from Houthi rebels, which are forcing tankers to take longer journies. But there are also other reasons for the leap in prices. 

“The Red Sea attacks by Houthi rebels, which are forcing tankers to avoid the Suez Canal and instead go round South Africa’s Cape of Good Hope, are clearly playing their part, but so have global refinery maintenance closures, the start of America’s driving season and UK retailers buying more fuel stocks ahead of the Budget to protect against a possible fuel duty hike by the Chancellor,” said Simon Williams, fuel spokesperson for the RAC. 

The RAC also said drivers are still losing out due to retailers taking a bigger margin. Prices on supermarket forecourts, for example, stood at an average markup of 10 pence per litre last year, compared to a 6p markup in 2019. 

“Despite these factors, we ought not to see forecourt prices go up too much more from where they are today, but a lot depends on how much margin the biggest retailers decide to take,” said Williams, 

“Positively for drivers, supermarket margins are lower than they were in January, but they are still significantly higher than they were prior to the pandemic and Russia’s invasion of Ukraine.”

Back at the start of the year, supermarket fuel retailers hit back at claims customers were being left shortchanged due to increased petrol prices. 

The Gordon Balmer, executive director of the PRA, said retailers were “operating in a dynamic market, consistently striving to provide fair and competitive prices to consumers.” 

It also claimed that its “retailers remain steadfast in their commitment to ensuring customers receive the best deals possible”.

*Northern Ireland best on prices*

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

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.

Williams said: “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 in 2022 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 were also 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."