How high will petrol prices go?
Government under pressure to intervene as cost of petrol and diesel climbs to record levels
The cost of filling an average family car with petrol has hit £100 on what the RAC described as a “truly dark day” for motorists.
The price of filling a 55-litre tank reached £100.27 for petrol and £103.43 for diesel yesterday, “as fuel prices keep rising”, said the BBC. On Tuesday, the cost of a litre of petrol rose by more than 2p to an average of 180.73p – the biggest daily jump in 17 years.
Why are petrol prices so high?
The oil market has been “gripped by an unprecedented downward shock only to be followed soon afterwards by an upwards shock”, said Sky News’ business reporter James Sillars. And such “jittery times” are “never good for price stability”, he continued.
Demand for fuel “fell off a cliff” in March 2020 as the Covid pandemic struck, with Brent crude oil prices falling below $20 a barrel. Then, as major economies re-opened, oil prices rose again on stronger demand.
Following the invasion of Ukraine by Russia – a leading oil producer – Western sanctions have led to lower volumes of Russian oil on the market, pushing the cost of Brent crude oil to highs of around $130 a barrel.
The UK has faced further problems owing to the weakness of the pound against the US dollar, a trend that began after the Brexit vote result was declared in 2016. The oil used to make petrol is paid for in US dollars.
The UK is also short on diesel refining capacity, which has made the country heavily reliant on Moscow for its diesel supplies.
There are only six large refineries in the UK. And while “in theory, the boom in refining demand should have helped them”, said The Guardian’s energy correspondent Alex Lawson, the oil price spike “will have inflated their input costs”.
The AA motoring organisation has also blamed rival RAC’s “reckless speculation” for rising prices, The Times reported. An AA spokesperson said the latest price hike was “a huge shock and fuels speculation of a £2 litre just gives the fuel trade licence to pile on extra cost and the misery”.
The RAC insisted that retailers were basing their prices on wholesale costs rather than speculation.
Amid mounting public anger, Downing Street has hinted that companies that fail to pass on the fuel duty cut may be named and shamed. A spokesperson said that “transparency may have an important role to play”, adding: “It is important the public understand what actions each of the fuel retailers are taking and so we are considering what further options we can take.”
With VAT and duty currently accounting for roughly half of the cost of a litre of fuel, “fury” from motorists may also force the chancellor to “slash VAT on fuel or bring in another cut on duty”, said The Mirror.
Sky News’ Sillars argued that “given that Boris Johnson has made cutting taxes a focus for his government following his confidence vote scare”, it “would be fair to assume” that Sunak would “cast an eye” over VAT and duty.
But regardless of such potential cuts, said the Daily Express, “experts believe petrol price rises will continue”, as “Europe and the world beyond adjust their energy sources”.