UK petrol and diesel prices: unleaded falls, but not by enough

Petrol became 7p per litre cheaper in September 2022, but retailers took a bigger margin than normal


Mike Rutherford

The average UK pump price of petrol fell by 6.69p to 162.89p per litre in September 2022, constituting the biggest monthly price drop since the year 2000. The cut saved drivers an average of £3.69 on a tank of unleaded.

That said, analysis from RAC Fuel Watch suggests drivers should have benefited from a further 10p cut, but retailers instead chose to take a larger profit margin than normal.

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Nevertheless, it now costs less than £90 to fill a typical family car’s 55-litre fuel tank with petrol for the first time since May.

The average price of diesel also reduced in September by 3.5p to 185.16p per litre. As such, the cost of filling a typical family car with diesel has fallen £10.41 to £99.09.

The average price of petrol at the ‘big four’ supermarkets (ASDA, Morrisons, Sainsbury’s and Tesco) fell by 6.6p per litre to 161.30p in September, but this is only 1.5p lower than the UK average, whereas normally it’s around 3.5p cheaper. Supermarket diesel, meanwhile, fell by 1.4p to 178.56p – 2p less than the UK average drop of 3.58p. Again, diesel is also normally 3.5p cheaper at supermarkets than other fuel stations.

RAC fuel spokesman Simon Williams said: “Despite September seeing the sixth biggest ever drop in the price of petrol, drivers really should have seen a far bigger drop, as the wholesale price of delivered petrol was around 120p for the whole month. This means forecourts across the country should have been displaying prices around 152p, given the long-term margin on unleaded is 7p a litre.”

He added: “As many drivers will have noticed, there are lots of smaller forecourts which are now selling fuel much cheaper than the supermarkets. We would urge everyone to shop around for the best deals rather than simply assuming the supermarkets are the lowest because they have been in the past.”

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What makes up the price of UK fuel?

The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.

For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 57.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.

The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.

Why is supermarket fuel cheaper than an independent forecourt?

Supermarket forecourts usually offer the cheapest fuel prices and this is because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they keep fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too. 

There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation. 

Why is fuel so expensive on motorways?

Motorway fuel stations argue the reason their prices are higher is that many of them are open 24 hours a day and offer more services than a regular forecourt. Motorway fuel stations also pay high rent prices for the buildings they operate.

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In more remote areas, fuel is often more expensive because of the higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this doesn’t apply to motorway stations: “We can see no reason why motorway fuel should be so much more expensive. In fact, arguably it is much easier from a delivery point of view than it is getting fuel to urban filling stations.”

Why is diesel more expensive than petrol?

Although diesel and petrol are taxed the same by the Treasury, historically diesel has been more expensive than petrol, as domestic refineries have struggled to meet demand. This has forced the UK to import diesel from other countries at a greater rate than petrol. In addition, diesel prices are pushed up by the cost of the additives that go into the fuel.

Furthermore, the gap between UK petrol and diesel prices widens during the winter. The end of the US “driving season” means retailers have a surplus of petrol they can’t export, so they sell it here at a lower price. Diesel demand, meanwhile, increases across continental Europe, where the fuel is commonly used in heating oil.

Recently, the influx of cheap diesel from countries like Saudi Arabia has turned the tide, swinging diesel wholesale prices closer to that of petrol, and bringing the pump price down with it. However the fact that we get a higher percentage of diesel from Russia than petrol means the advantage has swung the other way again.

What’s your view on fuel prices in the UK? Do we pay too much for our petrol and diesel? What would you do about it? Join the debate in our comments section below…

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