Why filling up the average family car in the UK has topped £100

The cost of filling an average family car with petrol has topped £100 on what has been labelled a “truly dark” day for drivers on Thursday. A multitude of factors have combined to leave Britons facing pain at the pumps.

The average cost of petrol is now 182.3p a litre, while diesel hit 188.1p on Wednesday. Some forecourts are already selling petrol for more than £2 a litre. Fuel prices have risen this year as the cost of crude oil, used to produce petrol and diesel, has jumped.

The price of crude collapsed during the pandemic as travel restrictions punctured demand. That demand has returned as the world gets back on the move. Russia’s invasion of Ukraine has exacerbated the situation as various western countries shun Russian oil. A fall in the value of the pound against the dollar in the past 12 months has also pushed up wholesale costs for petrol retailers in the UK.

The finger pointing has begun as consumers, already battling rising energy and food bills face soaring prices at the pump. The government has accused some fuel retailers of profiteering and not passing on March’s 5p cut in fuel duty. Retailers in turn have blamed rising wholesale costs.

Howard Cox, the founder of the FairFuelUK campaign, blamed oil refineries for not passing on a fall in the price of crude oil since the highs during the early days of the war in Ukraine. “The refineries are awash with cash and taking big margins,” Cox said.

The motoring groups have even turned on each other – the AA has blamed “reckless” scaremongering by the RAC for fuelling further price rises. The RAC denied this and has called for a cut to fuel duty or VAT.

The price of oil has eased from the highs of about $140 a barrel at the beginning of the invasion to about $120 as nations have sought supplies from alternative countries to Russia. However, retail fuel prices have not followed suit. Typically wholesale and retail prices move in tandem but refineries appear to be taking a bigger cut.

Refining margins are calculated using “crack spreads” – the overall price difference between a barrel of crude and the petroleum products refined from it. The US Energy Information Administration said a reduction in refining capacity in Europe and the east coast of America, as well as increased consumer demand, has pushed up the spreads.

Western oil refineries have struggled in recent years. The fall in the oil price due to Covid hurt an industry that has struggled to attract investment into facilities amid increased environmental regulation and worries over peak oil demand. Many of the refineries supplying Europe are based in Russia, while Beijing closely controls how much Chinese refiners export.

In the UK, there are six large refineries. There have been concerns over the finances of Essar Oil, the company behind the Stanlow refinery, while unions have called for a meeting with Scottish first minister, Nicola Sturgeon, amid uncertainty over the future of Grangemouth. In theory, the boom in refining demand should have helped them, although the oil price spike in March will have inflated their input costs.

The Competition and Markets Authority is looking into the matter and has threatened to launch a formal investigation if it finds evidence of the cut not being passed on to consumers. The government has said it has seen evidence that forecourts within the same retail chain are offering different prices in different areas of the country.

Industry sources argue that wholesale prices have risen so sharply that the benefits of the Chancellor Rishi Sunak’s fuel duty cut were rapidly wiped out.

UK fuel duty is 52.95p a litre for petrol and diesel following the cut. In the EU, countries levy a minimum excise duty of €0.36 (31p) a litre although only Bulgaria and Hungary stick to that. The Netherlands has the highest fuel levy in the EU, at €0.81 per litre, according to the Tax Foundation, a US thinktank.

Yes. With the northern hemisphere coming into “driving season” – as holidaymakers prepare to hit the roads – there are few signs that demand will slow. Gordon Balmer, executive director of the Petrol Retailers Association, said wholesale costs were continuing to rise and that its members could not afford to sell at a loss.

He told Sky News: “Many of our members know their customers personally, they come in on a regular basis, and they know the pressures that this puts on household budgets. Unfortunately, we buy on a wholesale basis and we have to make money out of it. They’re the facts of life, unfortunately.”

Goldman Sachs believes oil prices could return to $140 this summer, suggesting wholesale prices will remain buoyant.

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