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Fuel pricing

Diesel and petrol prices have hit the headlines recently, with crude oil prices plummeting to previously unseen levels. Some days US oil companies were apparently paying to have the black stuff taken off their hands, faced with nowhere to store the oil they were producing as demand collapsed. It all generated expectations of big drops in diesel and petrol retail prices, which have failed to materialise. Is it all the rip-off that the newspapers like to make out? Let’s compare the market for domestic heating kerosene, that held above 40p a litre going into 2020, then strangely hit a peak price of 45p in late March. Then it started falling rapidly as April arrived. But people who happily ordered oil based on attractive quotes of around 30p a litre in early April found that, by the time they took delivery 8 to 10 days later, the going rate had then fallen to not much over 20p a litre. But such price changes are amplified by the lack of any fixed costs – like the 58p a litre excise duty on road fuels – and 5 per cent VAT being the only taxation. The bumpy price ride was obviously a bit of price manipulation that created a nice one-off profit boost for some kerosene suppliers. 


Is the same thing happening with petrol and diesel prices? It would appear not, and one has to have some sympathy for the many independent petrol and diesel retailers, who often only enjoy small profit margins from the price we pay. All filling stations effectively act as tax collectors for The Chancellor and, from a pump price of 120p a litre, only 42p is the true value of the fuel. Around 7 per cent of the retail price covers transport costs, site fees and retail sales margins, amounting to 8 or 9p a litre. So we’re down to 33 to 34p a litre for the wholesale price of the actual fuel, without tax and duty. A standard barrel of crude oil being 159 litres, and at $40 a barrel each litre of crude has a value of 25 cents, or 20p in Sterling terms. So if crude oil at $40 a barrel drops to half that, at best we can only expect a 10p a litre fall in the retail price, or even less if the oil majors tweak their margins to compensate for loss of sales volume.


So the magic £1.00 a litre price that some areas have briefly seen, represents just 25p a litre with Excise Duty and VAT deducted. Any small independent garage selling at that price must make a living out of a typical 50 litre fill-up that adds just £12.50 to his real-world turnover. Without margins from further up the chain that big oil companies enjoy, the independent filling station is struggling, and has to charge more to even survive. An AA spokesperson recently said: “The average pump price is higher because the retailers say they need to charge 10p a litre more to offset the lower volumes of fuel they are selling.” Out in the country, and in isolated areas, that can add £5 to £10 to the cost of your fill up. It’s significant, but lose that local filling station, and it’s another convenience gone, like the village post office and general stores that closed some years ago. You must decide whether it’s a premium worth paying, to help keep your local garage in business, and perhaps continue to get MOTs and servicing done there far more cheaply and conveniently than at big urban dealers that are a fair trek away. Either way, at present you certainly need to keep a close eye on prices and avoid big oil company filling stations blatantly charging far more than others in the immediate vicinity. You also need to keep your eye open for local area cartels, where fuel retailers in some towns have unofficial agreements to maintain high prices. It’s supposedly illegal, although rarely policed, and it is a rip-off! But, as always, vote with your feet and choose where you buy wisely.

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