May fuel price update

Oil market 'flash crash' barely dents record UK petrol prices

20 May 2011

A drop of more than $10 a barrel in the cost of oil and a 4p-a-litre drop in the wholesale petrol price have so far barely dented average UK petrol prices.

However, an intense battle between supermarkets over the price of petrol, with Asda losing its long-held position as the nation's cheapest for petrol, offers strong hope of significant pump savings, the latest AA Fuel Price Report reveals.

Between mid-April and mid-May, average petrol prices have risen 1.14p a litre to 136.93. They set a new record of 137.43p last week but a 'flash crash' in the oil market, bringing Brent crude down from $125 to below $115, has so far knocked off half a penny.

Diesel prices have fallen even further over the past week. Having returned to the record of 143.04p a litre last Monday, the UK average price of diesel has dropped more than 1.5p to 141.49. A month ago the UK diesel price averaged 141.99p.

Prices to fall further

Indications that the average petrol price has further to fall include:

  • A 10% fall in the NW Europe wholesale petrol since early May, equivalent to a 4p-a-litre cut that takes into account exchange rate changes.
  • Average UK petrol prices were around 133.5p a litre in March when oil hit a plateau of $115 a barrel – before the 1p cut in fuel duty on 23 March.

Even so, with petrol costing on average 15.43p a litre more than a year ago (121.50p), a two-car family is still spending £32.76 a month more on petrol than last May. Diesel is 18.62p a litre more expensive than a year ago (122.87p), adding £14.90 to the cost of refuelling a commercial van.

Record fuel prices have shaken up shopping patterns - people are beginning to factor in the fuel cost of driving to a large store to shop for basics.

Edmund Kind, AA President

Supermarket wars

Petrol has become the battleground for a price war between supermarkets.

For the first time in many months, Morrisons' average UK price (134.24) is undercutting Asda (134.54). Tesco (134.57) is almost level with Asda while Sainsbury (134.93) lags behind but by less than half a penny.

The nearest non-supermarket is Jet at 136.26.

Asda sells the cheapest diesel (136.27p), on average nearly 2.5p less than its nearest rival.

Visits down/spending up

The supermarket petrol price war follows last month's Office of National Statistics (ONS) report on retail sales which showed small stores doing better in March than large ones.

This is echoed by AA credit card sales statistics which show that trips to petrol stations are down by 12% compared to last August but the average spend per trip for fuel, groceries and other items is up 17%.

Non-supermarket retailers are reported to be complaining to the Government about 'unfair practices' with fuel pricing.

Comment

"Although there is momentum for at least £2 to be knocked off the price of filling a petrol tank, drivers can't forget that the same tank cost them £7.50 less a year ago," says Edmund King, the AA's president.

"Record fuel prices have shaken up shopping patterns – people are beginning to factor in the fuel cost of driving to a large store to shop for basics. This has led to supermarkets trying to find ways to counter that disincentive with cut-price fuel or vouchers. This in turn tightens the pressure on non-supermarket retailers suffering from lower fuel sales."

Market speculation

The root cause of this is speculation in the oil and fuel markets, which is artificially boosting commodity and wholesale prices to the detriment of consumers, business and government inflation targets. The fact that early May's oil price collapse was partially caused by automated trading setting off a series of computer-controlled sell-offs illustrates how divorced from reality much of oil market speculation has become. Governments, including the UK's, need to recognise the problem and take action.

Although the irony of oil market speculators' computers turning on their bonus-driven masters is a delicious one, the reality is that the same players will help to drive oil prices back up. That is why the AA is calling for greater transparency in oil and fuel markets, for prices based on fundamentals of supply and demand and not on wishful thinking by speculators.

Petrol prices across the regions have risen on average by as little as 0.8p a litre in East Anglia and the South East and as much as 1.7p in the North. The most expensive area is Northern Ireland at 137.8p a litre and while Yorkshire and Humberside unusually shares the cheapest slot with the East Midlands at 136.4.

Although diesel prices have dropped on average by at least half a penny, Scotland and Northern Ireland remain the most expensive areas at 142.2p a litre, with Yorkshire and Humberside cheapest at 141.0.