Why Do Fuel Prices Change?
Fuel prices go up and down all the time.
Perhaps the only other precious commodity whose price changes so abruptly are Freddo bars, which are now up to an eye-watering 25p. Unbelievable, right?
But unlike Freddos, the factors which affect fuel prices are incredibly complicated and wide ranging.
May 2018 saw the largest petrol and diesel prices in the last 18 years and prices are continuing to sky rocket, with prices having hit a 4 year high. Drivers are being warned that it could cost at least £8 more to fill the tank up compared to last year.
So, in order to help you get to grips with the reasons behind the increase, here’s our attempt to demystify the strange and tumultuous world of fuel prices, where we discuss the main influencers on price.
Crude Oil Supply
Everything starts with crude oil.
Okay well – maybe not everything – but loads of really important products do. You know, like petrol, diesel, kerosene, various lubricants – just to name a few.
That’s why most experts agree that 66% of the price of fuel is dictated by the availability and price of crude oil.
An increasing demand for fuel and oil places immense pressure on available supplies. If something disrupts crude oil supplies, this has a domino effect on fuel.
Location of fuel
A main driver of fuel prices is how much competition’s around, including that of supermarkets.
You might not have noticed, but supermarkets’ prices vary across the country, as they don’t need to apply national pricing like they do on groceries!
If there are only two petrol stations in a ten-mile radius, they can get away with charging more.
Retailers in remote locations will charge higher prices to cover their overheads. In fact, many of the UK’s most expensive petrol stations are in remote areas like the Scottish Highlands.
Similarly, deliveries tend to be more expensive in areas that are sought after more. Last year, Holland Road station in Kensington, West London charged a whopping £1.74 per litre on average for unleaded fuel.
The middle east uproar has had a huge effect on oil prices considering its importance on worldwide supplies. Saudi Arabia, Iran and the United Arab Emirates are all top contenders for producing oil.
The recent event of the US President Trump leaving the Iran nuclear deal has resulted in prices increasing globally.
But it’s not just Iran and Venezuela playing a part in the link between geopolitical instability and an increase in oil prices.
Mitsubishi UFJ Financial Group said: “The ongoing escalation of tensions between Saudi Arabia and Iran, continuing conflicts in Iraq, Libya, Syria and Yemen have significantly taken their toll on the region.”
While a direct military conflict between Iran and Saudi Arabia is seen as doubtful, any intensification of proxy conflicts in the region would undermine stability, the Japanese financial services group said.
The IEA warned that recent geopolitical events have caused more uncertainty over future global oil supplies.
The poor pound to dollar exchange rates affect the dollar-based wholesale oil trade for UK consumers because fuel is traded in dollars.
RAC fuel spokesman, Simon Williams said:
“Unfortunately, the higher oil price has come at a time when the pound has weakened considerably against the dollar,” continued Williams. “This causes pain at the pumps due to the fact that, similar to oil, fuel is traded in dollars so the lower the exchange rate, the worse the price gets for UK motorists.”
Diesel fuel prices often vary during the year.
During the winter, the demand for heating oil affects diesel fuel prices. As heating oil and diesel fuel are produced at the same time, seasonal increases in heating oil demand can also increase pressure on the diesel fuel market.
In some areas, seasonal swings in farmers’ demand for diesel fuel can also impact diesel fuel prices.
Keep prices low
Fuel is a significant cost to not just drivers but to businesses too, which in turn, increases the burden for customers due to more expensive products and services.
The Director of the RAC Foundation has pointed out that “white rising oil prices and a weaker pound are contributing to what happens at the pumps it’s worth remembering that, despite the fuel duty freeze, more than 60 percent of what drivers pay still goes to the Treasury.”
To avoid rocketing fuel prices we recommend you:
- Buy in bulk – the more you buy, the cheaper it will be
- Purchase ahead of winter – when demand increases, prices increase
- Protect your tank – fuel contamination can result in unnecessary costs
- Buy fuel from Nationwide Fuels – we buy in bulk so we can pass our savings on to our customers