The true cost of fuel


Even the Petrol Retailers Association agrees greater transparency is needed / Photo: Rex Features

FOR the first time in millions of peoples’ motoring lives, diesel costs less than petrol. But while drivers of diesel cars should be thankful for that, the wholesale price of diesel has actually been lower than petrol for months; it’s just that it’s taken a while for this to be passed on to us.

The AA has already described the fuel companies as “plundering ordinary diesel drivers to the tune of four to six pence per litre”. And now fuel stations have confessed that they don’t pass on wholesale price drops as quickly as they implement price rises.

Howard Cox from campaign group FairFuelUK told me: “The Petrol Retailers Association (PRA) admitted to us that its members do delay beneficial price cuts when their wholesale purchase prices fall, in order to stay in business. They blame pressure from the four big supermarket chains.”

It’s an eye-catching headline but there is a bit more to it than that. Brian Madderson from the PRA replied: “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, but 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.”

It’s certainly true that many independent fuel stations are struggling. Fuel analyst Experian Catalist claims that since 2010, 60 per cent – 4,000 of them – have gone out of business.

But does that excuse the survivors holding prices higher? Cox has revealed figures that show fuel stations are actually making more ex-VAT profit now than they were in February when the price of fuel was higher. This is because of the relationship between the pump price and the wholesale price.

According to Cox’s figures, the average ex-VAT pump price per litre is currently 8.21p higher than the wholesale cost. Take away transportation costs and the difference is 6.01p. That’s up 2.5p per litre compared with February when diesel was 1.71p per litre more expensive at the pumps.

Petrol prices are linked to several factors. There’s the cost of oil, the exchange rate (fuel is traded in dollars), and the wholesale price that is determined by supply and demand. The first of those elements has fallen to $48.81 (£31.18) per barrel of Brent Crude as I write. The pound is currently strong against the dollar and Saudi Arabia has been increasing diesel production for Europe at the same time as demand wilts.

The result is cheaper diesel at the pumps. According to the RAC’s Fuel Watch, it now costs the driver of a typical diesel-powered family car £12.13 less to fill the tank than it did 12 months ago (incidentally, it’s £8.21 less for drivers of petrol cars).

The big question is, will it get even cheaper? The RAC’s Rod Dennis believes it will. He said: “Output isn’t slowing and there’s more diesel on the market than the world needs. Everything suggests the wholesale price will come down more which means further falls at the pumps. If things keep going in this direction we could see £1 per litre diesel in the next few months.”

Exactly how quickly those savings are passed on is a different matter. But everyone agrees that consumers need more transparency. Dennis said: “There should be a breakdown of prices at the pumps so drivers know exactly how the cost of fuel is calculated. Cox added: “We’re demanding an inquiry by the Competition and Markets Authority (CMA) into establishing pricing transparency at the pumps.” And Madderson said: “We are very keen to have price transparency. I’ve just written to the CMA suggesting they might like to look into the fuel market.”

So both sides want a mechanism to enable consumers to understand what exactly we’re paying for at the pumps. But neither is optimistic it’ll happen in the short term. Oh well, at least we have cheaper fuel.