How is the cost of fuel broken down?

We all know how expensive fuel is, but how many of us actually know why and who profits most?

 

Have you ever wondered why fuel is so expensive? Well you are not the only one. The AA has reported that the UK has some of the highest fuel prices in Europe with UK drivers currently paying around 117.1p for a litre of petrol and 117.8 for a litre of diesel.

Meanwhile the cheapest petrol prices in Western Europe can be found in the Czech Republic with a litre costing on average only 85.62p and diesel comes in at a budget friendly 83.35p per litre. Luxembourg isn't far behind with a litre of petrol costing 89.16, while diesel at only 74.66p is the cheapest in Europe. Very handy for motorists who live close to the border in Belgium, France and Germany!

The UK, ranked at the 18th most expensive place to buy petrol in Europe, sources its fuel from the same wholesalers as most other countries. So what makes us different?

To understand why, it's important to break down the price of a litre of fuel which can be divided into roughly 5 parts. From these figures it is clear who profits most – the government.

Fuel duty – Currently set at 57.95 pence a litre, this accounts for approximately 50% of a litre of fuel.

Cost of petrol
– This involves the cost of the raw element (crude oil) and its refinement at the plant.

The cost of petrol is the second-highest portion of the overall price, and in line with changing oil prices can be subject to dynamic changes in line with the oil price. As of July 2015 the price of oil was around $50 per barrel. This element accounts for around 27% of a litre of fuel.

VAT – Currently set at 20%, VAT is applied to petrol purchases. Any change to the fuel price will be subject to this tax.

Retailer Profit – Typically – and perhaps surprisingly - retailers receive only a small profit from the sale of every litre – around 5%

Delivery Distribution – The cost of transporting and distributing fuel is picked up by the wholesaler and accounts for just under 2% of the total cost.

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