The Russian invasion of Ukraine has rattled global oil markets, meaning British motorists are now forced to pay an average of £1.65 a litre for unleaded petrol.UK drivers have to pay more as diesel prices come under more pressure, with the latest RAC figures showing an average cost of £1.76 a litre.
However, many motorists are already paying a much higher-than-average cost per litre, with diesel reportedly reaching a staggering £2.07 per litre, while premium petrol prices have also breached the £2 per litre barrier in some forecourts.
According to the RAC, the new record prices mean a family car costs an average of £91 to fill up on petrol, or £97 for diesel.
There was relief that the immediate crisis in world oil markets appeared to have eased, with oil now trading around $100 a barrel, well below the $137 touched early last week.That means drivers should expect to see a drop in fuel prices soon, despite recent conflicting reports about whether the Organization of the Petroleum Exporting Countries (OPEC) group of oil producers is poised to increase production to make up for future shortages.
RAC fuel spokesman Simon Williams said: “We remain hopeful that retailers will soon start passing on the recent reduction in wholesale fuel prices to drivers when they next buy supplies. This should result in petrol stabilising at around 160p, while diesel Should remain at levels based on current wholesale prices.
“The big question is how keen retailers will be to pass on these savings, as they will no doubt be very conscious of protecting themselves from any rises that might materialize suddenly. Drivers desperately need to recover from these relentless daily rises. Just a week away from the spring announcement and drivers will be expecting the Prime Minister to end their misery by cutting duties or VAT. One thing is for sure, just to reiterate that the fuel tax has been frozen at 58p per litre will not be at all Cut it.”
The current drop in prices on world markets is said to reflect a slightly more positive tone in reports of talks between Ukraine and Russia, as well as speculation that the new Covid-19 lockdown in the Chinese region will reduce global demand.
However, experts told a select committee of lawmakers on March 14 that the cost of a barrel of oil could rise further as countries scramble to replace Russian supplies.
Nathan Piper, an oil expert at financial services firm Investec, told MPs: “If there is tougher action against Russia that really removes 5 million barrels of oil a day from the market, then there’s really no cap on oil prices.”
British Prime Minister Boris Johnson is on a mission to the Middle East today (March 16) aimed at getting countries such as Saudi Arabia to turn on the taps more widely.
Russia is one of the world’s largest producers of oil and gas, so any disruption to its production process has global implications.
With Russia’s full-scale invasion of Ukraine and facing international sanctions, supplies could be severely disrupted.Russia produces 4.5 million barrels of oil per day, only Saudi Arabia produces more.
The sanctions imposed on Russia have so far targeted banks and oligarchs rather than the country’s energy sector, but factors such as Germany’s delay of the Nord Stream 2 gas pipeline will have an impact on the energy market as a whole.Russia also has the ability to reduce oil exports to Europe in a tit-for-tat response to economic sanctions, and experts say it may be difficult for Saudi Arabian oil fields to increase production enough to deal with such measures.
“Oil producer cartel OPEC is already struggling to meet its output targets as crude demand rebounds after lockdown restrictions are eased. This has pushed up prices, with analysts warning of limited ability to increase supply if flows from Russia are affected by sanctions ,” reported the Financial Times.
Fuel prices can be broken down into three components; taxes levied by the government, the cost of drilling, refining and transportation, and the profit margins of fuel companies.
For gasoline, diesel and bioethanol, the government receives about 65% of the total cost through fuel tax and value added tax (VAT).The fuel tax represents a fixed price for fuel – it remains the same no matter how much the overall oil price fluctuates.Currently, the Ministry of Finance adds 57.95p per litre of fuel through the fuel tax, and an additional 20% through the value-added tax.How much VAT you pay depends on how much fuel you buy.
The second bulk comes from the wholesale cost of the fuel itself.Wholesale costs are a combination of currency exchange rates, global oil prices, and even domestic supply and demand.
Experts predict that high fuel costs will be with us for the foreseeable future, and not just because of the crisis in Ukraine – energy costs have been high for most of the year as the world emerges from lockdown and demand surges .
Part of the problem is that relatively low barrel prices in recent years have put plans to drill new reserves on hold.This is true in Africa, the United States and South America, and while current high prices may increase interest in exploring new reserves, it could take years for new wells to come on stream to impact the production the market needs.
The supermarket forecourt usually offers the cheapest fuel prices because supermarkets have market power.Companies like Asda, Tesco, Sainsbury’s and Morrisons are all competing with each other so they keep fuel prices as low as possible, hoping that when motorists come to fill up, they can also go to the grocery store every week Shopping.
There have been persistent rumors that supermarket fuels are lower in additives and of lower quality than traditional forecourt fuels, but there is little conclusive evidence of this.All fuels sold in the UK must comply with the standards set out in the Motor Fuel Regulations.
Highway gas stations argue their higher prices are because many of them are open 24 hours a day and offer more service than the average forecourt.Highway gas stations also pay exorbitant rents for the buildings they operate.
In more remote areas, fuel is often more expensive due to higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this does not apply to motorway stations: “We don’t see why motorway fuel should be So expensive. More expensive. In fact, from a delivery standpoint, it’s arguably easier than filling a city gas station.”
Although the Treasury levies the same tax on diesel and gasoline, diesel has historically been more expensive than gasoline because domestic refiners have struggled to meet demand.This has forced the UK to import diesel from other countries at a higher rate than petrol.In addition, diesel prices have been pushed up by the cost of fuel additives.
In addition, the gap between UK petrol and diesel prices widens over winter.The end of America’s “driving season” means retailers have excess gasoline they can’t export, so they’re selling it here at lower prices.At the same time, demand for diesel, the fuel typically used in heating oil, has increased on the European continent.
More recently, the influx of cheap diesel from countries such as Saudi Arabia has turned the tide, bringing wholesale diesel prices closer to wholesale gasoline prices and, with it, lower gasoline prices.However, the fact that we get a higher proportion of diesel from Russia than gasoline means that the advantage is reversed again.
What are your thoughts on fuel prices in the UK?Are we paying too much for petrol and diesel?what will you do?Join the debate in the comments section below…
Post time: Mar-21-2022