UK Fuel Costs Rise as Retail Margins Hit Highs

UK motorists are facing an increase in fuel costs, with prices for petrol and diesel having risen by 10p per litre in the current year. This trend has added approximately £5.50 to the cost of filling up a typical family vehicle.

Whilst there is less support from Government for the cost of living generally in 2024/25 compared with 2023/24 and 2022/23; the 5p cut to fuel duties has been extended into 2024/25, and the planned increase of fuel duties in line with inflation cancelled. Increases seen there are being pointed back at retailers, and energy markets, but which is the bigger factor?

The RAC has accused fuel retailers of significantly overcharging customers, particularly for diesel, by operating with “massive margins.” Criticism has been directed at the apparent disparity between the cost of fuel and the prices at the pump, suggesting profit-taking rather than a reflection of underlying market conditions.

A notable point in the recent trend of fuel pricing was recorded on January 16, with the lowest figures of the year being 139.7p for petrol and 147.6p for diesel. Since then, prices have risen steadily, with the current average costs standing at 149.95p for petrol and 157.7p for diesel.

Scrutiny has been extended to the pricing strategies employed by major fuel suppliers. BP (LON: BP) and Shell (LON: SHEL), in particular, have demonstrated significant regional differences in their pricing. At the end of April, the price spread was documented at 24p for petrol and 30p for diesel at BP stations. Meanwhile, Shell’s pricing spread was observed at 28p for petrol and the same for diesel. These disparities challenge the notion of consistent fuel pricing and indicate a level of pricing freedom that retailers are exercising.

In the light of these observations, the RAC is calling for the establishment of a monitoring body to become part of the Pumpwatch price transparency scheme, advocating for more consistent fuel pricing across the country. This call is reinforced by the fact that Northern Ireland has been able to maintain prices that are consistently 5p cheaper across the board, suggesting that lower fuel pricing is indeed feasible.

Concerns have also been raised about the UK's competition authority's warning regarding high retailer margins. Issued in March, the warning appears to have been largely disregarded by fuel retailers, as evidenced by ongoing allegations of diesel overcharging. This points towards a lack of effective response or a potential need for stricter regulatory action to ensure fair pricing for consumers.

The RAC's critique and calls for more transparent pricing mechanisms reflect a growing sentiment that fuel retailers need to better align their prices with market realities and exercise greater fairness in their charging practices. The establishment of a monitoring body could well be the necessary step towards achieving a more competitive and fair market for motor fuel in the UK.