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[NEWS] Low petrol pump prices 'over' as oil costs rise

Low petrol pump prices 'over' as oil costs rise

Fuel prices
Filling a tank for a 55-litre family car, such as a Volkswagen Golf, now costs £79.75 for petrol and £80.21 for diesel

RAC brands the news 'worrying' and forecasts that bigger price rises could be on the cards

Cheaper petrol pump prices seen for most of 2023 are “over”, the RAC has warned, as prices rise for a second consecutive month – and are expected to continue doing so.

This comes after the wholesale cost of oil surged by an average of $10 per barrel in July to $85.56 – a price not seen since mid-April. This has been blamed on demand outstripping supply.

The news has been branded as “worrying” by the motoring organisation, which said "bigger forecourt price rises could be on the cards".

Its data shows this oil-price rise has fueled the increase of both fuel types, by 7p for petrol and nearly 9.5p for diesel.

This has led to average forecourt prices of 145p (up 2p since June) and 146p (unchanged) respectively. For diesel, this ends a run of eight months of falling prices.

Filling a tank for a 55-litre family car, such as a Volkswagen Golf, now costs £79.75 for petrol and £80.21 for diesel.

The trend is a stark contrast to what has been seen for most of this year, prices having fallen by an average of 46.55ppl (pence per litre) on petrol and 44.78ppl on diesel since the highs of last summer.

In May, the price of petrol dropped to 145ppl for the first time in 18 months and has stayed at around that mark since.

The RAC's warning comes just a few weeks after it found that the UK's biggest supermarkets had "more than doubled" their profit margins on fuel since Russia invaded Ukraine last year.

“While we’re fortunately not in the kind of upward price spiral we experienced last year, it feels like the better times at the pump are over for the time being,” said RAC fuel spokesman Simon Williams. “July marks a turning point in the year.”

It's hoped that a price spike caused by retailers looking to increase margins – as was found to have happened last year by the Competition and Markets Authority’s (CMA) recent fuel market investigation (see below) – won’t occur, Williams added.

“Encouragingly, there has so far been very little upward movement from the big four supermarkets," he said. "But only time will tell."

In response, Andrew Opie, director for food at the British Retail Consortium – the body that represents the big four supermarkets – said: "Retailers understand the cost pressures facing motorists and work hard to offer the best value for money across petrol forecourts."

Gordon Balmer, director of the Petrol Retailers Alliance, said: “Many forecourts purchase their fuel on a daily lagged basis and the increase has now meant that many are trading on margins that are not sufficient to cover their operating costs. The Competitions and Markets Authority’s report into Road Fuel pricing said that many non-supermarket forecourts were undercutting the supermarkets, therefore our advice to motorists is to shop around.”

Hope remains in the form of Northern Ireland, where fuel is still “considerably cheaper”, despite the nation experiencing the same oil price increases: petrol is 4p less than the UK average (£2.20 cheaper per tank) and diesel almost 5p less (£2.75 per tank). 

“Sadly, this shows drivers on this side of the Irish Sea are still losing out,” Williams added. “If and when we finally see the two sets of prices coming together, we hope it will be as a result of lower forecourt prices in the rest of the UK.”

More good news for motorists was also announced today, as Asda confirmed that it would display live fuel prices online – a recommendation of the aforementioned CMA report.

Yet Williams said “real change” isn’t likely until an official price monitoring body – another point made in the CMA report – is created, as it will have “the power to fine companies that don’t properly reflect significant downward wholesale market movements on their forecourts”.

He added: “Real competition is the key, and this is something we're sadly lacking at the moment.”

CMA report confirms supermarkets inflated fuel prices  

In July, a major CMA report found that drivers paid on average 6p per litre more for fuel last year as supermarkets took advantage of weakened competition and inflated pump prices.

CMA chief Sarah Cardell, who said supermarkets were usually the cheapest place to buy fuel and market anchors, said the rising of prices would have had “a greater impact on vulnerable people, particularly those in areas with less choice of fuel stations”.

The report found the rise was instigated by Asda  – which was also fined £60,000 for not co-operating fully with the CMA investigation – and Morrisons, the two cheapest fuel sellers, which last year each made the decision to target higher margins. 

Asda’s fuel margin target in 2023 was more than three times what it had been for 2019, while Morrisons doubled its margin target in the same period. 

Other retailers, including Sainsbury’s and Tesco, didn't respond “in the way you would expect in a competitive market” and “instead raised their prices in line with these changes”, the CMA found. 

“Taken together, this indicates that competition has weakened and reinforces the need for action,” the report added.

Diesel prices have also been slow to drop in 2023, partially down to Asda ‘feathering’ its prices (reducing them more slowly as wholesale prices fell) and other firms not responding competitively to that. 

The CMA estimated that drivers have paid 13p per litre more for diesel from January 2023 to the end of May 2023 than if margins had been at their historic average.

“Competition at the pump is not working as well as it should be, and something needs to change swiftly to address this,” said Cardell.

As such, the CMA recommended a "fuel finder scheme" to give drivers access to live, station-by-station fuel prices on their phones or sat-navs. This would “help revitalise competition in the retail road fuel market”.

Cardell added: “We need to reignite competition among fuel retailers. This [scheme] would end the need to drive round and look at the prices displayed on the forecourt and would ideally enable live price data on sat-navs and map apps.”

The CMA also recommended bringing in a new monitoring body to “hold [the] industry to account”.

On this, RAC spokesman Williams said: “The fact that drivers appear to have lost out to the tune of nearly £1 billion as a result of increased retailer margins on fuel is nothing short of astounding in a cost of living crisis and confirms what we’ve been saying for many years: that supermarkets haven’t been treating drivers fairly at the pumps.

“It’s all about action now, and we very much hope the government follows through with both of the CMA’s recommendations. 

“While forcing retailers to publish pump prices is a positive step for drivers, what’s of far more significance is the creation of a fuel-monitor function within government which, we very much hope, actively monitors wholesale prices to ensure forecourts don’t overcharge when the cost they pay to buy fuel drops. 

“Without this, we fear drivers will continue to get a raw deal.”

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