22 September 2018
A slump in wholesale prices should trigger a supermarket pump price battle, however, mid September’s AA Fuel Price Report finds that average petrol and diesel pump prices have continued to rise to new four-year highs despite wholesale costs turning downwards from early September onwards.
By Tuesday:
- Petrol hit 131.38p a litre, a UK average last seen in July 2014
- Diesel reached 134.39p a litre, the highest average since August 2014
Over the past month, the average price of petrol has risen 1.8p a litre (up from 129.54p) while diesel has gone up a full two pence a litre (up from 132.33p).
Supermarkets are now averaging 128.1p a litre for petrol while oil company and other retailers average 132.7p.
With crude oil climbing towards $80 a barrel, drivers have been led to fear the worst. But, a combination of falling refining margins and a stronger pound should force a correction in pump prices – providing retailers choose to pass on the savings.
At the start of this week, European gasoline margins were reported to have fallen to a three-month low. So far this week, commodity petrol for the UK market has averaged $725.5 a tonne with Brent crude averaging $78.9 a barrel. In the final week of August, commodity petrol averaged $730.0 a tonne with oil at $70.3 a barrel.
Such a drop in the value of commodity petrol compared to oil happened at the same time last year, reflecting the end of the US motoring season. However, the hurricane season and its threat to US oil infrastructure always threatens the opposite.
Pound vs Dollar
With oil and fuel in commodity markets traded in dollars, a recent strengthening of the pound has worked in drivers’ favour. This week, petrol at $725 a tonne and the pound worth $1.315 converts into 41.6p a litre. The pound valued at $1.291 a fortnight ago re-values the same petrol at 42.4p a litre.
No end in sight
“Drivers were told earlier this month that there was ‘no end in sight’ to rising pump prices. Now, they should be looking for a £1.50-a-tank cut in petrol costs,” says Luke Bosdet, the AA’s fuel price spokesman.
The key question is to what extent and how quickly the fuel retailers decide to pass on the savings
“The key question is to what extent and how quickly the fuel retailers decide to pass on the savings. In the past, such a significant drop in wholesale prices would have triggered a pump price battle among the supermarkets. For the moment, drivers should keep an eye out for competitive oil company sites taking the opportunity to undercut expensive supermarket sites.”
For the moment, drivers should keep an eye out for competitive oil company sites taking the opportunity to undercut expensive supermarket sites
Bosdet adds: “The influence and fuel pricing policies of supermarkets have taken on a particular importance this week with the Competition and Markets Authority referring the Asda and Sainsbury’s merger for investigation. This week’s jump in UK inflation to 2.7%, partly due to higher transport costs, also underlines the significance of pump pricing on consumers.”