No, Petrol Will Not Stay Below £1 a Litre, And Here’s Why

Commenting on the fall in the oil price which is once again putting pressure on UK retailers to cut pump prices, RAC fuel spokesman Simon Williams said:

“The oversupply of oil continues to suppress the barrel price and it’s clear now that plans by some of the world’s largest oil-producing nations to limit production haven’t yet been enough to lift the price – there’s currently too little demand for oil in the first place.

“It’s right that retailers charge a fair price for fuel that reflects the price of the raw product, and in theory petrol prices could fall below £1 per litre if the lower wholesale costs were reflected at the pumps – but at the same time people are driving very few miles so they’re selling vastly lower quantities of petrol and diesel at the moment. This means many will be at pains to trim their prices any further.

“We also continue to be concerned about smaller forecourts that provide a vital service in areas where the supermarkets don’t have a foothold as many are already finding conditions tough with sales having fallen off a cliff since lockdown. It would be bad news all round if these forecourts shut up shop for good.”

We just checked by the way, and Asda seems the cheapest right now at 98p on Unleaded.

THE MATHS BEHIND PUMP PRICES

The UK government states that petrol has 58p of tax per litre, with another 12p of VAT tax on top of the fuel duty tax element. Then there’s 20 percent VAT levied on the WHOLESALE price of the fuel delivered to the petrol station or supermarket. That varies, but most analysts believe it’s another 2-3p per litre. So about 73p per litre is just tax.

Then add on the costs of buying the fuel, transporting it via tankers, insurance, staff wages, lighting, business rates etc. That adds up to about 26p per litre, depending on the site costs obviously.

That’s why a litre still costs just over £1, even though oil is in negative territory on wholesale markets. Supermarkets can afford to take a slight loss per litre to bring people to their store, but in the long run, no business can keep on selling stuff at a loss.

Insurance Edge advice is that if you’re a key worker and need fuel, then fill up in about a week or so when the pump price will be at rock bottom. The price of petrol and diesel will rise – very quickly – once the UK lockdown ends. Retailers are hungry to recover their losses over the last two months, so expect unleaded to hit £1.18 very fast indeed.

About alastair walker 9575 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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