AA fuel price update - June 2018

Shame-fuel behaviour

Forecourts give their customers a pounding and deny the rest of UK retail a £1 million a day boost

22 June 2018

More than a month after petrol and diesel wholesale costs peaked, following oil’s rise to $80 a barrel, barely a third of potential pump savings have been passed on to motorists, says the latest AA Fuel Price Report.

With average petrol and diesel prices 2p a litre or more than £1 a tank dearer than they might be, it means that one section of UK retail is denying the rest of it a consumer spending boost of at least £1 million a day.

Out on the highway, motorists are driving along roads of pump-price shame. Even supermarkets have been charging a fiver more for a tank of petrol at one location compared to 20 miles down the same road at the same supermarket.

And, if you think that petrol at 130.9p a litre is at the high end, add yet another 2p a litre or £1 a tank for market towns with communities of up to 10,000 people.

Comparing the UK’s average pump prices in mid June with mid May’s, even with last week’s supermarket price battle, petrol on Monday was 3.24p a litre more expensive (128.78p v 125.54p) and diesel 3.34p dearer (131.69p v 128.35p).

Fuel price reports

Fuel price profile
  • In the last full week of May, wholesale petrol peaked at an average of 43.62p a litre, with diesel at 45.79p.
  • Last week, wholesale costs had fallen to a weekly average of 41.32p and 43.69p respectively. Including the VAT, which would be added at the pump, the potential savings were 2.76p for petrol and 2.52 for diesel.
  • Average UK petrol prices at the pump peaked at 129.51p a litre at the end of the first week of June, with diesel topping out at 132.48p.
  • On Monday, petrol averaged 128.78p a litre and diesel 131.69 – a drop of 0.73p for petrol and 0.79p for diesel.
  • Last week, Asda, with its nationwide cap on prices of 124.7p a litre on petrol and 127.7p on diesel, initiated a pump price skirmish involving most of the other supermarkets.
  • On Monday this week, supermarket prices averaged 124.7p for petrol and 130.2p for diesel.
  • Around the towns where Asda has a fuel presence, they pulled supermarket petrol prices as low 120.7p a litre on Monday. Elsewhere, supermarket petrol cost as much as 130.9p a litre.
  • A supermarket also hit rural dwellers with 128.9p for petrol on the edge of the New Forest - although that would have triggered celebrations among the 10,000 inhabitants of Haslemere, a substantial market town in Surrey. Without the influence of supermarket pricing, their cheapest petrol cost 132.9p.
  • Even on Tuesday, travellers hoping for cheaper supermarket fuel around Channel ports in Kent were paying a premium of 4p-5p a litre or more than £2 a tank, compared to the other end of the county around Gravesend.

But what is almost incredible is that, on average across the UK and despite supermarket prices at many places only slightly cheaper than their local non-supermarket rivals, supermarket petrol on Monday was 5.5p a litre cheaper than at sites supplied by oil companies – a margin last beaten in the ‘£1-a-litre’ battle of December 2015. This is an indication, not only of the price disparity between supermarket and non-supermarket retailers, but also the major price differences among sites of the same supermarket.  

Why does it matter?

Fuel retailers might argue that, even if wholesale prices were the same throughout the year, there would still be price differences between retailers. It’s little wonder that drivers in the South pay more for their fuel – business rates are higher. And a summer mark-up is no different to any other trader cashing in on a seasonal boost. Look at shop prices leading up to Christmas, followed by 30% or 40% reductions just before and in the sales.

The AA argues that road fuel is a basic necessity – it gets people to work, the kids to school and the big weekly shop. You can’t switch to the seasonal produce or buy a cheaper or lower-quality alternative, as you can with grocery shopping. You may be able to drive more efficiently, but rush-hour drivers are largely hostage to traffic conditions.

Transport is the biggest component of the average UK household weekly spending, according to ONS statistics. At £79.70, or 14% of the total weekly spend of £554.20, it beats housing costs of £72.60. On top of that, consumers have been facing higher mortgage costs, pension contributions, grocery inflation, train fares, childcare costs and council tax.

28% of AA members spend a set amount when they buy road fuel, rising to 40% among the less well-off. These set amounts are budgeted to cover essential travel costs, such as work journeys. When pump prices rise or stay artificially high, these drivers can’t skimp but have to raid other parts of their personal or family budgets. It means that they have less to spend in other shops and sections of the retail sector.

UK petrol consumption alone averages 1.37 billion litres every month. That’s 46 million litres a day. When UK fuel retailers hang on to 2p a litre in wholesale price savings, that’s £0.92 million not being pumped back into potential consumer spending. Add the impact of lower diesel costs not being passed on to drivers, and that lost boost to the rest of UK retail goes well above £1 million a day.

“While the high street is closing shops, laying off workers and issuing profit warnings largely because consumers are spending less in stores, the fuel sector of UK retail is happily snaffling an extra £1 per tank of fuel. Granted that margins on a litre of fuel are low, in the order of 2p to 6p a litre, but a sustained 2p-a-litre profit hike on a necessity needs to be seen within the context of cash-strapped consumers and struggling non-fuel retailers,” says Luke Bosdet, the AA’s fuel price spokesman.

While the high street is closing shops, laying off workers and issuing profit warnings largely because consumers are spending less in stores, the fuel sector of UK retail is happily snaffling an extra £1 per tank of fuel
Luke Bosdet, the AA’s fuel price spokesman

“Other than Asda with its continued national cap on prices, there appears to be a fundamental shift in supermarket fuel pricing. Last year, at least two of them would race to be first to announce pump price cuts as oil and wholesale values fell away after surges. This month, we were left wondering whether any of them were going to cut their prices as costs fell – until Asda moved on the 13th.

“And then, when the supermarkets did, some price differences between sites were what used to be associated with motorway versus non-motorway fuel pricing. Yet, on average, supermarket prices look very reasonable. However, when you drill down locally, it looks very much like many communities are subsidising those where pricing is much more competitive. To think that drivers used to criticise supermarkets for charging 2p to 3p more than in a neighbouring town, and Newbury drivers nearly boycotted theirs in January 2013. I think they’re just stunned now.”

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