Oil price surge adds another 3.5p to petrol price
After four years of a fuel duty freeze, a 5.5p-surge in average petrol prices over the past six weeks shows that the damaging price volatility is as bad as it was in March 2011.
Since mid February, the average price of petrol has risen 3.64p a litre in a month, from 108.28p to 111.92p a litre. Diesel now costs an average of 118.19p a litre, up 3.13p from a month ago (115.06p).
Over the past six weeks, with the price of oil rebounding 33% since mid January ($45 - $60) and the wholesale price increasing 6.5p a litre, the pump price of petrol has risen 5.5p a litre. It had crashed to a low of 106.39p on 1 February, a level last seen in October 2009.
For diesel, the end of winter has seen the wholesale price start to drop away. Having risen 5p a litre with the oil price surge, a penny has been lopped off in the past week. At the pump, the average price is 4.8p higher than when the price crash bottomed out at 113.42p on 1 February.
The past week has seen the oil price drop from $60 to below $55. A shortage of oil storage capacity, from struggling demand colliding with over-production, has once again glutted the market. As reported in the February 2015 AA Fuel Price Report, continued oversupply was forecast by the International Energy Agency. This underlines the threat unrestrained commodity market speculation continues to pose for UK drivers and businesses - as it has since 2008.
The sense of déjà vu also reveals itself as the Coalition government’s commitment to a freeze on fuel duty completes its fourth year (and is extended beyond September following Wednesday’s budget). Just as petrol prices have shot up 5.5p a litre in recent weeks, the start of the freeze in March 2011 (setting fuel duty at 57.95p a litre) was heralded by a 5.8p hike in the weeks before (127.7p to 133.5p).
Four years of fuel duty freeze have, and continue to be characterised by commodity market-driven spikes and collapses in the price of oil and wholesale fuel.
However, there has been a change in the make-up of road fuel consumption in the UK.
Throughout 2011, UK road users got through:
Last year, they consumed:
The extra 0.2 billion litres of road fuel used last year added almost £116 million in fuel duty to Treasury coffers compared to 2011. Little wonder then that Wednesday’s OBR forecast predicts sustained receipts of £27 billion or more from road fuel duty this financial year and the next, rising above £28 billion in 2018-19 and beyond.
Additionally, the 2.5% increase in VAT at the start of 2011 has been particularly rewarding from petrol and diesel – a consumer necessity. Last year, with petrol averaging 128.35p a litre, the difference between 17.5% and 20% VAT directed an extra 2.67p a litre into the Treasury.
In 2012, with the pump price averaging 136.28p, the benefit to government coffers was an extra 2.71p a litre. For every billion litres of non-business petrol consumed last year, the 2.5% higher VAT brought in an extra £26.7 million for the Chancellor.
Commodity market speculation is as impulsive and dangerous as ever, pump prices shoot up with little effort and the UK continues to have the highest fuel tax burden in the EU
Edmund King, AA president
“Although UK drivers should be grateful to the Coalition for freezing fuel duty over the past four years and not adding to the burden of crippling pump prices, events in the oil and fuel markets in recent weeks send a dismal message to drivers – nothing has changed in the past four years. Commodity market speculation is as impulsive and dangerous as ever, pump prices shoot up with little effort and the UK continues to have the highest fuel tax burden in the EU,” says Edmund King, the AA’s president.
Across the UK, Northern Ireland continues to sell the cheapest petrol, averaging 111.5p a litre, and the cheapest diesel, averaging 117.4p. The average price of petrol and diesel is most expensive in Scotland, respectively 112.5p and 118.9p a litre.