FUEL FIASCO...FUEL FIASCO.. UK FUEL CRISIS: HOW LONG CAN THE GOVERNMENT GO
The latest UK average petrol and diesel prices, according to RAC Fuel watch, have now rocketed to:
• unleaded: 191.25 pence per litre • super unleaded: 201.34 pence per litre • diesel: 199.02 pence per litre
• LPG: 85.42 pence per litre WHAT MAKES UP THE COST OF A LITRE OF FUEL?
The RAC states that the price you pay for petrol and diesel at the pumps is governed by wholesale fuel prices, which in turn, are affected by:
• the global price of crude oil • supply and demand for crude oil • oil refinery production and capacity
• the pound to dollar exchange rate, as refined fuel is sold in US dollars per metric tonne
• distribution costs • the margin fuel retailers decide to take
• fuel duty charged by the Government, currently 52.95p a litre • VAT charged at the end of every forecourt fuel transaction, currently at 20%
While some of these stay largely static - such as the fuel duty rate and VAT - others such as the oil price and dollar to sterling exchange rate can be very volatile. This explains why prices rise and fall. A combination of high oil prices and weak Sterling leads to the highest pump prices.
WILL FUEL PRICES GO DOWN? RAC fuel spokesperson, Simon Williams, told ITV news:
“With analysts predicting that oil will average 135 US dollars a barrel for the rest of this year, drivers need to brace themselves for average fuel prices rocketing to £2 a litre, which would mean a fill-up would rise to an unbelievable £110. The wholesale price of diesel is fast approaching 160p a litre which, when you add 7p retailer margin and 20% VAT, would take the pump price over the £2 mark.”
Parkers.co.uk reports that without government intervention, analysts are saying that prices are expected to remain at current levels until at least the end of the year. That’s because of the current high price of crude oil, and the ongoing supply issues which have come about as a result of the UK Goverment’s response to the Ukraine-Russia war.
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However, there are other factors: Crude oil
Crude oil is directly reflected in fuel prices. Indirectly, the cost of living is increasing, as the prices of goods and services have to be increased to meet the higher costs of running a business and operating logistically.
The price of crude oil has dropped to around $108 a barrel from a high of $140 earlier this year. The price of crude oil always fluctuates, since there are a number of factors that contribute to its valuation. The price of pump fuel tends to lag behind crude oil, so when this starts to drop, it can be weeks before you feel it at the pumps.
But let’s put it this way, after supply and demand, the increasing number of unpredictable natural disasters, geopolitical instability and the policy of the governments of the UK, USA and EU to Putin’s invasion of Ukraine are all factors pushing the price up. Since the price of petrol and diesel is 90% determined by the cost of wholesale Brent crude, according to RAC Fuel Watch, the price of crude oil is a dominant factor in setting the fuel price.
Delivery
The logistics of getting your fuel to the refuelling stations via shipping channels and road tankers makes up 1% of the total price of your fuel.
Retailer margin
The retailer’s mark-up can sit anywhere from 2-10% of the fuel price per litre. Business Secretary Kwasi Kwarteng told petrol bosses the competition regulator is monitoring the situation. But petrol retailers said their costs had remained high with the Petrol Retailers Association saying margins are: ‘often not enough to cover operating costs.’
In a letter to the industry, the business secretary said the public was: “rightly expressing concern about the pace of the increase in prices at the forecourt.”
He added that people were frustrated that the fuel duty cut: “does not appear to have been passed through to forecourt prices in any visible or meaningful way. It is also unaccept- able that different locations even within the same retail chain have widely different prices.
“I have been reassured that they will not hesitate to use their powers to act against petrol stations if there is evidence that they are infringing competition or consumer
law,” he concluded. JULY 2022
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