The Competitions and Markets Authority move to interview supermarket bosses has led to sudden falls in diesel prices - but there’s still a way to go, the RAC says
- What makes up the price of UK fuel?
- Why is supermarket fuel cheaper than an independent forecourt?
- Why is fuel so expensive on motorways?
- Why is diesel more expensive than petrol?
Mike Rutherford
The Competition and Markets Authority’s (CMA) widely publicised move to quiz supermarket bosses about their sky-high diesel prices appears to have prompted significant falls in prices at the pump, the RAC motoring organisation has reported.
After months of campaigning over sky-high pricing of diesel on supermarket forecourts, the RAC says the CMA’s intervention has seen diesel prices cut by more than 7p a litre. The CMA expressed its concern about the possibility of what it called ‘weakening competition’ in the sector, and appeared to hint at the possibility of some collusion between supermarkets which was keeping prices high. Following its decision to pull bosses in for questioning, falls in the price of supermarket fuels have accelerated, according to RAC figures.
On 15 May, the CMA reported in its fuel price study that average supermarket diesel margins had risen compared to 2019, and within two weeks of its announcement the price of litre of diesel fell by nearly 7.5p from 151.02p to 143.58p per litre. Throughout April, in spite of the wholesale price of diesel falling beneath that of petrol, supermarkets were routinely selling diesel at around 9.5p a litre more.
“Since the Competition and Markets Authority’s made its announcement about supermarkets increasing their margins compared to three years ago and said they will be formally interviewing bosses, it appears the rate at which the price of diesel has fallen has sped up,” said RAC fuel spokesman Simon Williams.
“Even today, with 27p having come off the average price of supermarket diesel since the start of the year, diesel drivers are continuing to get a poor deal. For two straight months it has cost retailers less to buy diesel on the wholesale market than it has petrol, yet they continue to charge more for diesel at the pumps.”
The CMA has promised to announce the results of its ongoing investigations within the next four weeks, and the RAC has expressed the hope that “it heralds an end to poor value at the pumps”.
“We also hope it means the biggest retailers start charging fair prices at all of their sites across the country, and not just at those where they’re competing directly with other forecourts locally,” said WIlliams. “It can’t be right that the same brand can sell fuel for so much more in one part of the country than another – this sort of postcode lottery is wholly unfair to drivers and completely unjustifiable.
What makes up the price of UK fuel?
The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.
For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 52.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.
The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.
Why is supermarket fuel cheaper than an independent forecourt?
In the past, supermarket forecourts have tended to offer the cheapest fuel prices and this was because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they have kept fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too.
In more recent times, however, fluctuating fuel prices have caused some analysts to question whether supermarket fuel really is cheaper. In September 2022, RAC fuel spokesman Simon Williams explained that, “there are lots of smaller forecourts which are now selling fuel much cheaper than the supermarkets. We would urge everyone to shop around for the best deals rather than simply assuming the supermarkets are the lowest because they have been in the past.” The Competitions and Markets Authority are looking at supermarket fuel pricing in a bit to “get to the heart of the issues” around apparently high fuel prices.
There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation.
Why is fuel so expensive on motorways?
Motorway fuel stations argue the reason their prices are higher is that many of them are open 24 hours a day and offer more services than a regular forecourt. Motorway fuel stations also pay high rent prices for the buildings they operate.
In more remote areas, fuel is often more expensive because of the higher transport and supply costs, but according to RAC fuel spokesman Simon Williams, this doesn’t apply to motorway stations: “We can see no reason why motorway fuel should be so much more expensive. In fact, arguably it is much easier from a delivery point of view than getting fuel to urban filling stations.”
Why is diesel more expensive than petrol?
Although diesel and petrol are taxed the same by the Treasury, historically diesel has been more expensive than petrol, as domestic refineries have struggled to meet demand. This has forced the UK to import diesel from other countries at a greater rate than petrol. In addition, diesel prices are pushed up by the cost of the additives that go into the fuel.
Furthermore, the gap between UK petrol and diesel prices widens during the winter. The end of the US “driving season” means retailers have a surplus of petrol they can’t export, so they sell it here at a lower price. Diesel demand, meanwhile, increases across continental Europe, where the fuel is commonly used in heating oil.
Recently, the influx of cheap diesel from countries like Saudi Arabia has turned the tide, swinging diesel wholesale prices closer to that of petrol, and bringing the pump price down with it. However the fact that we get a higher percentage of diesel from Russia than petrol means the advantage has swung the other way again.
Keyword: UK petrol and diesel prices: diesel slashed by 7p a litre after competition probe