As of 21 March 2022, the cost of petrol sits at £1.61 per litre and diesel at £1.78, both all-time highs. With fuel prices rising to break new records every day, we’re left wondering if this year could see petrol hit £2 per litre, and diesel even more.
What’s causing the rise in petrol prices?
Tensions over Russia’s invasion of Ukraine have sent fuel costs soaring all over the world. Here in the UK, we get around 18% of our diesel directly from Russia. Around two thirds of Brits currently drive diesel cars, meaning big disruptions at the pump.
The war is messing with supply, while sanctions imposed on the Kremlin could take as many as five million barrels of oil off the market each day. If this happens, according to Nathan Piper of Investec, “oil prices would really have no ceiling.” The UK only imports around 6% of its oil from Russia, but we’re still affected by global market prices. Despite our self-reliance, all fossil fuel prices are likely to keep rising.
Of course, this was all still the case before Russia’s invasion. Booming post-pandemic demand was driving costs up faster than oil-producing nations could increase supply. The Ukraine situation has simply made the situation worse.
Could petrol prices go back down again?
It’s possible. World events have conspired in the past to drive the cost of fossil fuels way down. Back in 2016, the average cost of petrol hit a £1.01 low, with diesel down to £1 per litre. In this case, there was simply too much supply vs demand. The US shale revolution and continuing strong production from countries like Saudi Arabia contributed to a worldwide oil glut that reduced its value.
Then, in 2020, petrol went down to £1.06 per litre and diesel to £1.11. The pandemic and the boom in working from home reduced demand to the point where prices had to drop. Of course, the events of that year are hardly a fair price to pay for cheaper fuel.
We can’t say for sure what might be on the horizon which could bring fuel costs back down. It’s certainly unlikely to happen any time soon.
What makes up the cost of petrol and diesel?
One thing that’s important to bear in mind is that the price of oil isn’t the biggest influence on what you pay at the forecourt. Taxation adds a fair chunk. According to Statista, the cost of fuel breaks down like this:
• 34.9%: Fuel duty
• 33.2%: Wholesale fuel price
• 16.7%: VAT
• 7.5%: Retail profit margin
• 6.3%: Wholesale biofuel price
• 1%: Delivery and distribution
As you can see, VAT and fuel duty combined add much more to what you pay than the cost of the fuel itself. This begs the question: what are the people in charge of taxes doing?
How are the government reacting?
Boris Johnson visited the UAE and Saudi Arabia this month to discuss increasing their oil supply to cover the shortfall from Russia. The chancellor also announced a cut of 5p per litre on fuel duty in the 2022 spring statement. That’s going to cut about £3.30 off the cost of a standard 55-litre car. Every little helps, but more could be done to address surging prices.
A windfall tax on North Sea oil and gas has been proposed, but the biggest oil and gas companies aren’t too active in the North Sea. Who knows how much money such a tax would be able to pass onto consumers. Experts are urging the government to continue investing in renewable energy and the UK’s growing electric vehicle charging network.
Save money by going electric
Petrol and diesel costs aren’t likely to come down any time soon, with homes that make use of every fuel-saving tip in the book remaining likely to pay more. By switching to an electric car, you can sidestep the fuel crisis and potentially save a lot of money.
The cost of charging an electric car is typically much less than that of petrol and diesel. If you install a charger in your home, those costs go even lower while you charge overnight.