The cost of filling up a vehicle in the UK is a complex calculation, influenced by a multitude of global and domestic factors, according to new analysis from the RAC. As motorists continue to grapple with elevated prices at the pumps, understanding these components is crucial for comprehending the fluctuations observed across the country.
At the forefront of these influences is the global price of crude oil, which is traded in US dollars. Fluctuations in supply and demand, geopolitical events, and decisions by major oil-producing nations, such as those within OPEC+, directly impact this base cost. When global oil prices rise, the cost for UK importers to purchase crude oil increases, a cost that is inevitably passed down the supply chain.
Beyond the raw material, the cost of refining crude oil into petrol and diesel also plays a significant role. Refinery margins, which represent the profit refiners make, can vary based on global refining capacity and demand for specific fuel types. These wholesale prices are what retailers typically pay, and any upward movement here directly translates to higher prices at forecourts.
The exchange rate between the Great British Pound and the US Dollar is another critical element. Since crude oil is priced in dollars, a weaker pound means it costs more in sterling to purchase the same amount of oil. This currency dynamic can exacerbate price increases even if global oil prices remain stable, adding an additional layer of cost for UK consumers.
Domestically, government taxation forms a substantial part of the final price. Fuel duty, currently set at 52.95p per litre, and Value Added Tax (VAT), applied at 20% on both the wholesale price and the fuel duty, together account for a significant proportion of what motorists pay. These fixed and percentage-based taxes mean that even if wholesale prices decrease, a considerable portion of the pump price remains constant due to government levies.
Finally, retailer margins, which cover the costs of running forecourts, staff wages, and profit, also contribute to the pump price. While often a smaller component compared to global oil prices or taxation, variations in retailer margins can explain some of the price differences observed between different petrol stations and brands across the UK.