The cost of refilling the average family car with petrol now exceeds £ 100 for the first time.
Industry figures released Thursday morning by the RAC said the situation is likely to worsen the cost of living crisis for motorists and customers, as companies will at some point seek to pass on their rising costs.
The price of fuel has been a major component of the cost of living crisis since the beginning, with diesel, the engine of the UK economy, already surpassing the mark.
All the charges for the pump are added to the darkness of inflation because if things like fuel and energy costs are also more expensive for businesses, these additional bills are eventually passed along the supply chain. , you guessed it, you and me.
It is one of the reasons why food bills increase as the cost of production and distribution increases.
The price of refueling is likely to reach £ 100, as Gove hints at government action – the latest cost of living
Here, Sky News explains why fuel prices continue to rise and asks if the humble UK motorist is being scammed.
Why have fuel prices risen?
First, we understand the nature of the oil market in recent times; caught by an unprecedented downward shock only to be followed shortly after by an upward shock. In fact, hectic times are never good for price stability.
Fuel demand fell off a cliff in March 2020 as COVID soared around the world, with Brent crude oil costs collapsing below $ 20 a barrel. This is a shock.
Did UK bomb costs reflect this decline? The answer: Not really.
This was because retailers still had their own staff and other bills to pay, so pump prices remained just above £ 1 a liter to maintain, they argued, a fair price for all.
When the major economies reopened, oil prices gradually rose due to stronger demand and this continued to be the case in the market until February this year, when the major oil producer, Russia, invade Ukraine. The upward shock.
The possible implications, along with the impact of Western sanctions, forced Brent crude oil costs well above $ 100 a barrel to a high of around $ 130.
As time has gone on, lower volumes of oil and Russian oil products on the market have compressed supplies, while higher costs are also reflected in things like refining margins, adding to prices. finals.
So why the latest price increases?
With regard to Brent crude oil contracts, the announcement of the EU’s oil embargo on Russia has put more pressure on prices as it intensifies concerns over an international supply struggle.
It coincided with the time when China’s manufacturing sector was relaunched following the easing of pandemic restrictions.
There is also the issue of speculation.
The RAC warned this week that the 2-pound-per-liter spectrum is not far off as we head into the summer holiday driving season.
But the AA described the price forecast as reckless, saying it was feeding “bomb scam prices”.
Later more on the central issue of scams.
What specific UK factors add to the fuel price problem?
The main one among the other market forces is the weakness of the pound against oil at a price of one US dollar.
This weakness has been evident since the result of the Brexit vote was declared in 2016.
The pound had recovered to $ 1.37 in January, but is currently trading at $ 1.25.
This is due to a very strong dollar, a safe haven for investors in times of economic shock, but it also reflects the concerns of recession for the UK economy.
Other factors include the lack of diesel refining capacity in the UK.
There are six main refineries, but the country usually depends on Russia for a fifth of its diesel supplies and this is being phased out.
How do our fuel prices compare to those in Europe?
The UK is not the most expensive for diesel and petrol, but it is in the top 10.
According to data shared with Sky News by the AA, Denmark was the most expensive for petrol with an average of 205.33 pa per liter on May 30, the most recent comparable figures available.
Sweden topped the diesel list with 193.46p.
The average prices in the United Kingdom that day were 173.02 p liters for unleaded and 182.58 p for diesel.
Germany, Europe’s largest economy, was more expensive than gasoline but not diesel.
The AA said that as things stand, drivers in the UK will enjoy lower prices at major summer destinations in France and Spain.
Are we being scammed?
That’s the big question that has haunted fuel prices for decades.
The old adage says that gasoline retailers quickly pass on the higher costs, but take a long time to cut prices.
Talk to any motoring group or fuel fair activist and they will tell you it’s true.
It is a complicated market with many players in the supply chain, so fuel transparency is key.
Those who accuse retailers or refiners of making money quickly have long advocated a British mechanism to track prices from the pipeline to the bomb.
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They point out that prices are cheaper (currently 6 pence per liter) than the UK average in Northern Ireland, where competition is encouraged by the Consumer Council’s Fuel Price Checker.
Supermarkets, which have traditionally used the appeal of cheaper fuel as a way to bring more shoppers closer to their doors, have abandoned this strategy.
Asda – usually the first to reduce fuel prices and make a lot of noise – has remained silent and even raised its prices by 5 pence a liter in a single day this week.
Fuel, it seems, is no longer a “loss leader” for large grocery stores.
What else can the government do to help?
The UK, according to the AA, has one of the highest fuel tax rates in Europe, even when Chancellor Rishi Sunak’s 5p per liter fuel tax reduction is included for a year, announced in March.
Currently, VAT and duties account for about half of the cost of a liter of fuel.
Given that Boris Johnson has made the tax cut a focus for his government following his confidence vote this week, it would be fair to assume that Mr. Sunak would keep an eye on both of them if he wants to help keep the slowdown in the economy.