Petrol and diesel prices

Recent trends in road fuel prices

Oil prices jumped on 24 February, when Russia lauched its full-scale invasion of Ukraine, and continued to rise through early March. This led to very large increases in road fuel prices to new record levels in early and mid-March. 

The rates of duty on petrol and diesel were cut by five pence per litre on 23 March 2022. This initially led to a fall in the price of both fuels, but by less than five pence per litre. This drop in prices was soon reversed and there were particularly large increases in late May and June. Both petrol and diesel prices have set and broken many new records in this period. They peaked on 4 July 2022 at 191.6 and 199.2 pence per litre for petrol and diesel respectively.

Prices fell steadily from their July 2022 highs to mid-summer 2023, other than a brief period in October 2022. They increased again in autumn 2023, fell towards the end of the year and have generally increased in 2024. January 2024 prices were the lowest since autumn 2021.

There was also a sharp fall in the gap between diesel and petrol prices in summer 2023. It had reached record levels in late 2022. The price gap increased again in late 2023, but has not approached record levels.

The high international oil prices in 2022 were magnified in the UK due to the relative weakness of Sterling. Crude oil prices in Sterling reached their highest ever levels in 2022. On top of this there were record refinery margins in early 2022, initially for diesel and latterly for petrol, due to a fall in refinery output/capacity and the impact of the war in Ukraine. This explains the rapid increase in road fuel prices between May and July 2022 at a time when oil prices increased more slowly.

Gap between petrol and diesel prices

The gap between petrol and diesel prices increased in autumn 2022 to a new record level of more than 24 pence per litre. The refinery margin for diesel in North West Europe (including the UK) increased sharply in October due to strikes and maintenance at refineries and cuts in imports from Russia. Europe exports petrol, but imports diesel, so this reduced refinery capacity has a greater impact on diesel prices. While the gap between the price of the two fuels on the wholesale market fell in late 2022 and early 2022, the retail price gap in the UK did not fall substantially until months later.

Tax

Fuel duty rates have been the same for petrol and diesel for many years. They were frozen in the 11 years to March 2022, cut by five pence per litre in March 2022 and have not changed since then. The current level of duty on both fuels is at its lowest real level since March 1993.

Competition and Markets Authority report on road fuel pricing

In July 2023 the Competition and Markets Authority (CMA) published the final version of its report on its road fuel market study Supply of road fuel in the United Kingdom market study. Its conclusions included:

• Competition between retailers has weakened in recent years.
• Retail margins in fuel retail have risen significantly since 2019.
• Historic price leaders among the supermarkets had ‘significantly’ increased their margins on fuel in recent years, with the largest increases coming in 2022-23. Other retailers followed their price lead.
• The average fuel margins at the big four supermarket retailers increased by an estimated 6 pence per litre between 2019 and 2022, costing their customers an estimated £900 million.
• Retailers increased their diesel margins more than for petrol in in 2023. This meant drivers paying 13 pence per litre more for diesel in the first five months of 2023 than if margins were at their 2017-2022 average.
• There were ‘significant’ drops in the price of fuel after each of the interim reports in this study. This indicated “…that there was room for retailers to reduce prices”

The report said that based on its analysis:

…there is clear evidence in the data of rocket and feather pricing for diesel in 2023. The evidence from the retailers suggests that this may have been used as a strategy to increase margin in a manner that is less visible to consumers than increasing prices.

 The increases in margins on diesel in 2023 that the report identified imply an additional cost to consumers of around £1.6 billion, taking to total cost to consumers of this and the higher supermarket margins between 2019 and 2022 to around £2.5 billion.

This paper looks at trends in the price of petrol and diesel at the pump and before tax, possible reasons for the gap in prices between the two fuels and compares prices and taxes in different countries.

Trends in the pump and pre-tax price of road fuel and other petroleum products are given in The Department for Business, Energy and Industrial Strategy’s Collection of road fuel and other petroleum product price statistics. The AA’s Fuel Price Reports have national, regional and international average prices. The RAC’s Fuel Price Watch includes up to date prices, longer term trends and a breakdown of the different price components. Petrolprices gives regional local figures. The Hydrocarbon Oils Bulletin from HMRC includes details of changes in duty rates and revenues. The European Commission’s Weekly Oil Bulletin gives a weekly comparison of pump and pre-tax prices of fuels across the EU. The International Energy Agency’s Monthly Oil Prices shows trends in fuel prices for the largest OECD economies. Their Oil Market Report gives background to changes in oil and product prices. Oil price data is summarised in the Library briefing Oil prices.

The associated spreadsheet to this paper includes the following reference tables:

• Breakdown of typical UK road fuel since 1990
• Latest average Petrol and Diesel Prices and Taxes in the EU and UK