Surging pump costs squeeze drivers and businesses – but retailers deny profiteering claims
Fuel prices are rising to some of the highest levels recorded in years as war in the Middle East pushes up the wholesale costs of oil.
Over the past three weeks, prices of petrol have shot up 10p per litre and diesel 20ppl, according to research by the RAC.
This means the cost of filling up the average 55-litre family car – such as a Volkswagen Golf – now costs around £11 more, at £79 in total for petrol or £88 for diesel.
For diesel, the average pump price has climbed above 161ppl for the first time since November 2023, and data suggests it is on course to hit 170ppl soon.
This is because UK refineries are unable to meet the demand for diesel, so most is shipped in from abroad.
While diesel comes from the same raw material (crude oil) as petrol, the refining process takes much longer.
These rising prices are having a big effect on drivers – and AA president Edmund King told Autocar that people are “becoming more cost-conscious and selective about how they use their cars”.
He even claimed that AA patrols “have observed slower motorway speeds as drivers try to conserve fuel”.
The situation, which has been brought about due to disruption in the Strait of Hormuz, has reinforced a belief amongst the public that petrol prices rise quickly when oil markets go up but fall much more slowly when they come down.
Why pump prices rise quickly
Analysts say this is nothing new and has been seen in fuel markets for decades.
Nigel Driffield, a professor of strategy and international business at Warwick Business School, said the main issue is that drivers misunderstand how petrol prices work. Forecourts typically price fuel based on what the next delivery will cost, not what they paid for the fuel already in their tanks.
He compares it with other retail markets, saying: “If the world price of fridges suddenly goes up, retailers don’t keep selling the ones in their warehouse at the old price if they know the next shipment will cost more.”
Many drivers also believe petrol stations are selling fuel bought months earlier at lower prices, but Driffield said this too is a misunderstanding.
“A typical forecourt doesn’t have anything like three months of supply under it,” he explained. “In most cases, you’re looking at roughly a couple of weeks’ worth of fuel.”
Even so, many drivers still believe that fuel retailers are making unusually large profits when prices at the pump increase dramatically.
Are forecourts really profiteering?
Gordon Balmer, executive director of the Petrol Retailers Association (PRA), which represents independent forecourts across the UK, said pump prices sometimes have to rise quickly when wholesale fuel costs increase.
“I don’t think that criticism is fair,” he said. “There are a number of different ways retailers buy fuel. If the wholesale price rises overnight and you take delivery the next day, unless you reflect that increase at the pump, you’re going to make a loss.”
Balmer noted that fuel retailers also face rising operating costs: “If you look at the average margin this year, it has been about 12 pence per litre, but out of that you have to pay wages, business rates, insurance and all the other costs of running a forecourt. Business rates on forecourts have gone up nearly 30%, the national living wage has risen nearly 7% and we’re also seeing record levels of crime, such as shoplifting and people driving off without paying. So there are a lot of cost pressures on the business.”
He added that “about 64%” of forecourts in the UK are independent businesses and “those businesses have a choice about where they invest their money: they can invest in their forecourt or put it elsewhere. Therefore the return has to make sense.”
Staff abused over prices
Frustrations from drivers are increasingly being felt at fuel stations.
Kurt Williams, owner of DK Forecourts, which operates 12 sites in south-east Wales and employs 70 people, claimed staff are regularly on the receiving end of abuse from motorists.
“People think we’re making a fortune every time prices go up, but that’s just not the reality at all,” he said. “Our margins are very tight and we’ve still got all the usual business costs to cover, which are continually increasing.”
He said the pressure is increasingly being felt by those working on the forecourts, who are regularly receiving verbal abuse and accusations of profiteering from frustrated customers.
Some DK sites have had to put up signs asking motorists not to be rude or abusive, he added, as such incidents are occuring multiple times per day.
“People don’t really understand how the fuel supply chain works or how prices are set,” he said. “Retailers like us don’t have the control people think we do, and that’s where a lot of this anger is coming from.”
Effect on businesses
For businesses that rely on fuel, the increases are already biting hard.
“Fuel costs have gone up significantly for us: we’re seeing increases of around 30%, and that’s on top of already tight margins,” said Rhys Hackling, who has run Buckinghamshire-based Direct Connect Logistics for 12 years and operates around 24 HGVs.“A lot of operators are buying fuel where the price isn’t fixed until it actually goes into the tank, so you can’t really plan for it. It just keeps going up, and it’s very difficult to manage.“It’s not just diesel either. Since the war in Ukraine, the cost of [diesel exhaust fluid] AdBlue has gone up sharply as well, and that’s something we have to use. It makes up a noticeable chunk of the cost.“At the same time, there’s less work around, because people are spending less.
“I don’t think the public always realises that when our costs go up, it feeds through the whole system: if it costs more for us to move things, it ends up costing more for everyone.”
Karen Barlow, company secretary of the National Private Hire and Taxi Association, said most of the body’s members remain heavily exposed to rising fuel costs.
“For most of our members, it’s a very different picture: more than 90% are still in petrol or diesel vehicles, so they’re really feeling these increases,” she said.
“We’re hearing it can easily be 20-30% more a week on fuel, and for some it will be more than that, depending on how much they’re out working.
“The difficulty is they can’t just put fares up to cover it. A lot of drivers are tied into council contracts, so even if their costs go up overnight, they’re stuck on the same rates and have to absorb it.”
Some drivers are already finding ways to reduce their exposure to volatile fuel prices, however.
Take London’s taxi drivers, for example: the shift to electrified vehicles is already helping to offset rising fuel costs, according to Steve McNamara, general secretary of the Licensed Taxi Drivers Association.
“This just proves yet another advantage of going electric,” said McNamara, who has been a black cab driver for 40 years. “If you can charge them at home, they’re so cheap to run.
“We’re getting on for 70% of the London fleet being electric now. It shows the benefit of not being so dependent on fossil fuels.”
What can the government actually do?
Global oil markets are also playing a significant role in determining what drivers pay for their fuel.
Zoltán Ruzsbaczky, a senior research analyst at Wood Mackenzie, said disruption in the Strait of Hormuz is affecting fuel markets across Europe.
“It’s already heavily impacting global oil and UK retail prices, especially diesel,” he said. “Apart from crude oil, about 30% of Europe’s diesel imports came from Persian Gulf refineries, and those suppliers are currently cut off from Europe due to the closure of the Strait.”
That has caused wholesale prices to rise rapidly, which can quickly push up prices at the pump.
“UK diesel wholesale spot prices increased by more than 37% from one week to the next after the outbreak of the conflict,” said Ruzsbaczky.
Ministers are also watching the fuel market closely. Energy secretary Ed Miliband said last week that the government wanted to “ensure consumers are treated fairly during this crisis”, while prime minister Keir Starmer warned that ministers would step in if fuel firms tried to “rip off customers”.
However, said Driffield: “Essentially the government doesn’t have the power to control petrol prices. What it can do is ask the competition authorities to investigate if it believes the market is not working properly.”
In the UK, that role falls to the Competition and Markets Authority, which monitors fuel markets and can investigate if it suspects companies aren’t competing fairly. It’s currently monitoring fuel prices after being asked by ministers to keep the market under review. Any further action would depend on what that monitoring shows.
Balmer said the government could also ease pressure on drivers through tax policy. Fuel duty currently stands at about 52.95ppl, according to HMRC, with VAT added on top, meaning roughly half the price drivers pay at the pump goes to the Treasury.
“One thing we’ve asked the government to do is abandon the planned increases in fuel duty this year,” said Balmer. “If they say this is about helping people, they could put their hand in their pocket. More than half the price of a litre of fuel goes to the government, and when you factor in VAT it’s even more: about 75p of a £1.40 litre is tax.”
For now, the debate over petrol prices and, most crucially, how much the government can really do about them looks set to continue.
