Petrol costs fall to a few month low

The average price of unleaded fell to a three-year low of 139.5p a litre yesterday, according to AA data.

While this will be welcomed by motorists, the price is being bouyed by the 5p fuel duty cut made by the previous government. 

The motoring organisation is calling for the new government to continue fuel duty relief ahead of the Budget in October.

Before petrol dropped to 139.5p a litre yesterday, the previous lowest amount was 139.7p in January 2024.

The current average price was last seen in October 2021, so motorists can breathe the biggest sigh of relief while filling up in nearly three years.

Diesel similarly fell yesterday to 144.2p a litre.

Before that the lowest diesel price had been 144.3p a litre in October 2021, during a moment when covid disruption had hit but before Ukraine had been invaded.

However, the reality is that without the 5p fuel duty cut (6p with VAT), these three-year lows would have been delayed 10 to 14 days, the AA says.

Fuel duty was cut in March 2022, the impact of which shouldn’t be underestimated.

The average price of petrol fell by a penny over the weekend into Monday and further 0.4p on Tuesday.

Had the fuel duty cut not been in place, even if pump price maintained Tuesday’s rate of fall, it would still have taken more than 10 days for pump prices to drop to where they are now.

Without the duty cut pump prices now would have been 145.5p for petrol and 150.2p for diesel.

‘Pure and simple, the only reason why pump prices are nearly at a three-year low this week is because of the 5p fuel duty cut. 

‘Removing it threatens to send millions of low-income drivers back into the era of ‘perma-high’ road fuel prices,’ says Edmund King, AA president.

‘Getting rid of the fuel duty cut unleashes a £3.30 a tank (standard 55 litres) shock on the personal and family budgets of the 28 per cent of drivers who spend a set amount when they go to a fuel station.’

This follows warnings from the AA that, had the fuel duty cut not been implemented in March 2022, UK motorists would have endured average petrol prices at more than 150p a litre from 21 February to 8 August.

Before Covid, the worst prices UK motorists suffered was 142.48p a litre in April 2012.

This is Money reported that a trifactor of fuel duty hikes, commodity price surges and swollen retailer margins could cause real financial hardship.

How would a fuel duty hike hit drivers ?

With the Labour Government suggesting they have a ‘£22billion black hole’ in public finances left to fill by the parting Tory regime, a hike in road fuel taxation appears imminent.

This would be the first hike since 2011. 

While many motoring groups expect a cancellation of the 5p fuel duty to recoup around £2.4billion a year for Treasury coffers, the impending bad news doesn’t stop there for motorists: some experts are predicting the Chancellor will go much further by increasing the duty by 10p a litre.

Howard Cox, a Reform UK politician as well as founder of the FairFuelUK campaign group, said last week:

‘I have credible intelligence that the Treasury has virtually settled… on increasing fuel duty by 10p a litre’. 

This could potentially see the levy on every litre of petrol and diesel increased to 62.95p. 

‘I predict the net outcome from the October Budget is that the UK’s drivers are set to be fleeced on a scale not seen since 1997 to 2010 when Labour increased fuel duty by a staggering 46 per cent,’ Cox went on.

The AA anaylsed the impact of scrapping the 5p fuel duty cut on living wage workers who drive a substantial mileage to work or in the course of it.

These are employee who works 40 hours a week at £11.44 an hour, currently taking home £20,653.94 annually. 

In April 2022, the same living wage worker, on £9.50 a hour, took home £17,748.60 a year – a difference of £2,905.34.

If the 5p fuel duty cut was scrapped it would result in a 6p-a-litre increase to the petrol pump price and would add £3.30 to the cost of filling the typical 55-litre car fuel tank. 

For a worker who fills up once a week, the annual increase in fuel costs would be £171.60. 

Oil costs fall – how do oil prices affect petrol pump prices?

The other reason fuel prices have dropped as of yesterday is because of crude oil prices: oil fell from above $80 a barrel in mid August to $73 this week.

The resulting crash in wholesale fuel costs has helped this week’s cheaper pump costs.

Oil price changes are felt hard at the pumps.

The industry standard is for a 1p a litre charge at the pump for every $2-a-barrel change in the price of oil.

This means that a $20 increase will lead to a £5.50 jump in the cost of a filling a typical 55-litre fuel tank.