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Why do Fuel Prices Seem to Change so Often Throughout the Year?

Learn About Some of the Reasons Why Fuel Prices Change on a Regular Basis

You may drive past your local petrol filling station on a regular basis on your commute to work and notice their prices are generally the same from day to day with small changes from week to week most of the time.

So when you come to call up your local oil company to request a quote, you may wonder why the prices can change so often, not just on a weekly basis, but sometimes even on an hourly basis. So we’re going to try and help explain the reasoning behind this.

Yo-Yo-ing fuel prices going up and down

As the old saying goes; “the only thing constant is change” and that’s very much the case with fuel prices. It’s understandable that it could be frustrating for people who buy oils and fuels on a regular basis, never knowing how much they will be paying month to month.

But there are of course many reasons for the changes in prices and a lot of factors that can affect fuel prices which are incredibly complicated and wide-ranging.

Back in May 2018 for instance, we saw the largest petrol and diesel prices in the last 18 years and prices continued to skyrocket, with prices having hit a 4 year high. Drivers were being warned that it could cost at least £8 more to fill the tank up compared to the previous 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 and the main influencers on the all-important prices of the fuels and oils we all rely on so much.

Crude oil supply and prices

It all starts with crude oil. You may have seen on the news mentions of the crude oil price when talking about global fuel prices and all for good reason.

The majority of the fuels and oils we use in our motor vehicles, heating boilers, electricity generators and more all rely on a ready supply of what ultimately starts off as crude oil. Without it, we wouldn’t have fuels such as petrol, diesel, kerosene, lubricants – just to name but a few.

It’s for this reason that most experts agree that 66% of the price of fuel is dictated by the availability and price of crude oil. As the price increases on crude oil and the availability of it become more difficult due to lower production and availability. Those price increases are unfortunately passed on through the supply chain.

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.

The location of petrol stations

It’s all about “Location Location Location” and we’re not even talking about Kirstie and Phil’s popular property TV show!

Have you ever noticed as you drive through the countryside, just how much more expensive fuel is compared to a drive through the city? It’s especially noticeable if you compare the prices in the countryside after visiting larger supermarkets that have their own petrol filling stations nearby.

The main driver of fuel prices is how much competition’s around, including that of the supermarket petrol stations. But even the supermarkets are guilty of adjusting prices, not just around the country, but even within the same city prices can be vastly different.

The reason they vary prices around the country is because they do not need to apply national pricing as they do on the groceries they sell. If there are only two petrol stations in a ten-mile radius, they’re under less pressure to stay competitive.

For retailers in remote locations, they will often charge set their fuel prices higher 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. Back in 2017, one of the highest recorded prices at the pump was at Holland Road station in Kensington, West London which charged a whopping £1.74 per litre on average for unleaded fuel.

Geopolitics in oil-producing countries

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.

Exchange rates and its effect on the £

The poor pound to dollar exchange rates affects 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.”

Weather conditions

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 and pass on the savings to our customers

If you’re looking for a reliable nationwide supplier of fuels and oils, along with competitive pricing, call our knowledgeable team of fuel experts today on 0330 678 0880 to get the latest and most competitive prices on red diesel, HVO fuel, DERV, kerosene, industrial heating oil and more.

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