UK Petrol Prices Continue to Rise for Third Consecutive Month

Introduction

Petrol prices in the UK have been steadily increasing over the past few months, with August marking the third consecutive month of price hikes. The average price of unleaded petrol has risen by nearly 7p per litre, reaching 152ppl, while diesel prices have increased by 8ppl, climbing from 146ppl to 154ppl. This surge in fuel prices has been attributed to supply issues and the reduction in supply by the Organization of the Petroleum Exporting Countries (OPEC). In this article, we will explore the reasons behind the rising fuel prices and their long-term impact on consumers.

Reasons for Fuel Price Increase

The primary reason for the increase in fuel prices is the reduction in supply by OPEC. The price of crude oil has risen by nearly $12 per barrel since July, reaching almost $87. As a result, the wholesale cost of fuel, which retailers pay, has also increased. This increase in wholesale prices has been passed on to consumers at the pumps.

Determinants of Fuel Prices

The price of petrol and diesel at the pump is largely determined by the wholesale price of Brent crude oil. However, fluctuations in crude oil prices can take weeks to filter through to the forecourts. This delay in price adjustments means that consumers often experience a lag between changes in crude oil prices and changes in fuel prices.

The Long-Term Impact

A major report from the Competition and Markets Authority (CMA) in July 2023 revealed that drivers paid an average of 6ppl more for fuel in the previous year due to supermarkets taking advantage of weakened competition and inflating pump prices. The report highlighted that this increase in prices had a greater impact on vulnerable individuals, particularly those in areas with limited fuel station options.

The CMA found that Asda and Morrisons, the two cheapest fuel sellers, were responsible for instigating the rise in prices. Asda’s fuel margin target in 2023 was more than three times higher than in 2019, while Morrisons doubled its margin target during the same period. Other retailers, including Sainsbury’s and Tesco, also raised their prices in line with these changes, indicating weakened competition in the market.

To address this issue, the CMA recommended the implementation of a “fuel finder scheme” that would provide drivers with access to live, station-by-station fuel prices on their phones or sat-navs. This scheme aims to revitalize competition in the retail road fuel market and make pricing information more transparent for consumers. The CMA also suggested the establishment of a new monitoring body to hold the industry accountable.

Call for Action

The RAC has expressed its support for the CMA’s recommendations and called for swift action to address the issue of increased retailer margins on fuel. The organization emphasized the need for a fuel-monitor function within the government to actively monitor wholesale prices and ensure that forecourts do not overcharge consumers when the cost of buying fuel drops. Without such measures, drivers may continue to face unfair pricing practices.

Conclusion

The continuous rise in petrol prices in the UK has been driven by supply issues and the reduction in supply by OPEC. This increase in fuel prices has had a significant impact on consumers, who have been paying more at the pumps. The CMA’s report highlights the need for action to address weakened competition in the market and ensure fair pricing for drivers. Implementing a fuel finder scheme and establishing a monitoring body are some of the proposed solutions to revitalize competition and hold the industry accountable. It remains to be seen how the government will respond to these recommendations and alleviate the burden on consumers.