Understanding the pump price
Fuel prices have a significant impact on business finances and many of the UK’s motorists and businesses alike want to understand what influences them.
The rates of petrol and diesel depend on several factors which include; the global price of crude oil, the cost of refining the crude oil into fuel, transportation, retailer costs & profits and government duty & VAT.
Price of Crude Oil
Petrol and diesel are made from crude oil which is extracted by drilling into the earth’s surface. Crude oil is traded on international markets where it is traded in US dollars. As a consequence, crude prices fluctuate in the global balance of supply and demand and as value of currency varies.
Crude oil is transported to refineries where it is turned into petrol and diesel. Refining oil takes energy and costs may vary based on the type of oil it is and the origin in which it came from.
Transportation and retail costs & profits
Refined products are then transported by pipelines or road to distribution centres, petrol stations and airports across the UK.
Fuel retailers buy and distribute petrol and diesel to their sites. The cost of fuel station staff, rent of buildings and forecourts and the distribution costs increase the price of the fuel.
Fuel duty and VAT represent the majority of the pump price, accounting for approximately 70% of the total cost. Whilst the UK product cost of petrol and diesel is one of the lowest in Europe, due to high taxes, UK fuel prices are above the European average.
These are the main elements that influence pump prices in the world right now. However, there are other reasons such as exchange rates, competition and seasonal factors that can contribute to the rates of diesel and petrol. You can read more about how competition effects the pump price in our blog 'Why do fuel prices vary from city to city?'