Pump costs are falling quicker than they’ve all yr

The prices of both unleaded petrol and diesel are falling more quickly than at any other point in 2024 so far, the RAC has confirmed.

Both fuels are now nearly 7p cheaper than a month ago, RAC Fuel Watch analysis shows.

The RAC also predicts prices will fall to a three-year low as soon as September, thanks to low crude oil prices and a strong pound.

As of 19 September a litre of unleaded cost 136.15p on average, which is almost 7p lower than a month ago (142.86ppl) and down 5p since the start of the month (141.26p).

Diesel similarly dropped 5p, from 145.99ppl to 140.87ppl – again nearly 7p lower than this time last month (147.74p).

The sharp drop means both petrol and diesel are at their cheapest for nearly three years, with unleaded drivers able to save nearly £4 on a full tank.

Prices haven’t dropped this quickly over the course of a month since December 2023, when average prices at the pumps for both fuels reduced by more than 7p.

But even then, prices on forecourts were considerably higher than they are today.

And in more good news for motorists, the RAC expects average pump prices to fall to a three-year low as soon as the end of September.

If prices continue to drop as the RAC hopes, the average cost of a litre of petrol could dip to as low as 132p and diesel to 138p within the next fortnight – which would be the lowest price drivers have paid for either fuel since July and September 2021 respectively.

If drivers are smart about where they shop they will be able to take advantage of prices well under the average, too, with supermarkets currently charging 133.23p for unleaded and 137.69p for diesel.

Motorists in Northern Ireland – where the RAC considers pump prices to be at their fairest – can fill up with petrol that costs just 131.5ppl and diesel that costs 134.2ppl.

RAC fuel spokesperson Simon Williams said: ‘It’s really encouraging to see pump prices coming down so rapidly, which we know is as good for drivers’ wallets as it is for keeping the headline level of inflation in check.

‘Based on wholesale pump prices, which is what retailers pay to buy the fuel in the first place, we know there’s scope for further price cuts so we very much hope that within the next few weeks we’ll see pump prices reach their lowest levels in three years’.

Why are pump prices tumbling?

The low price of crude oil

Currently oil prices are relatively low, at $73 a barrel which has been brought about by lower global demand.

In April oil prices hit an in-year high of $91, so this $18 drop combined with a strong pound is helping to bring down the cost at the pumps.

Drops in wholesale fuel costs lead to cheaper pump costs.

The industry standard is for a 1p a litre charge at the pump for every $2-a-barrel rise 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.

And retailer margins are adding more than a 6p-a-litre increase to the cost of petrol.

The Competition and Markets Authority reported in its early August Road Fuel Interim Monitoring Update that ‘petrol retail spreads in the four months to June averaged 12.62ppl, which was 2.55ppl lower than over the previous four months – but still more than double the average of 6.51ppl over 2015-19’.

That 6ppl equates to an extra £3.30 that drivers are having to cough up.

Relatively strong pound

A strong pound on top of falling oil prices – which is helped by a fall in the UK’s rate of inflation – massively helps UK fuel retailers ‘get more bang for their buck’ when buying in new stock on the wholesale fuel market because fuel is traded in US dollars.

Is a fuel duty hike coming in the October Budget?

Fuel duty was cut in March 2022, with the AA warning that the impact of this shouldn’t be underestimated.

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

‘Removing the fuel duty cut 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.’

The AA has warned 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 price UK motorists suffered was 142.48p a litre in April 2012.

Fuel duties represent a significant source of revenue for the Government.

The Office for Budget Responsibility says fuel duties levied on purchases of petrol, diesel and a variety of other fuels raise £24.4billion per year for the Treasury.

That estimation is inclusive of the 5p-a-litre cut and duty at a rate of 52.95p a litre.

This represents 2.3 per cent of all receipts and is equivalent to £867 per household and 0.9 per cent of national income.