Do FairFuelUK claims of “rip off” fuel prices really add up?

Filling up car with fuelThe FairFuelUK campaign — fronted by motoring journo Quentin Wilson — is on the warpath again.

Its latest attack on fuel retailers suggests that they have jacked up fuel prices while the price of oil has been falling over the last month.

However, I’m not sure that the figures presented as evidence by FairFuelUK really add up. In today’s statement, FairFuelUK says:

We are reliably told that the average independent garage should reflect oil and wholesale price changes in just 7 days

That seems reasonable. You would expect a delay of a few days for changes to the price of oil to be reflected in retail prices of refined fuels.

But FairFuelUK then appears to ignore this reality with its own figures! It compares retail fuel prices with oil prices taken from the same day:

Data supplied from RAC Foundation & Portland Fuel 18-Aug 16-Sep Change % Change
Oil Price Sterling £ per barrel 38.66 34.99 -3.67 -9.5%
Petrol at the pumps pence per litre 110.22 111.93 +1.71 +1.6%
Diesel at the pumps pence per litre 111.22 113.11 +1.89 +1.7%

Source: FairFuelUK

You may be wondering why FairFuelUK chose 18 August and 16 September. They seem a bit random, but I think they’ve been very carefully chosen. The oil price* rose sharply during the first half of August. This means that petrol and diesel prices on 18 August would be based on a cheaper oil price, so would look quite good value.

In contrast, the oil price fell sharply during the week before 16 September. So petrol and diesel might have looked more expensive relative to oil on 16 September.

In my view, FairFuelUK chose these dates carefully to create the effect it wanted. But I’m not convinced.

A more realistic set of figures?

If we follow FairFuelUK’s own guidance of a 7-day lag between the oil price and retail prices, we get the following set of figures:

Data from IG Index*/RAC Foundation/FairFuelUK 11-Aug 09-Sep Change % Change
Oil Price Sterling £ per barrel 35.79  36.19  +0.40  +1.1%
Oil Price USD $ per barrel 46.37  48.01  +1.64  +3.5%
Seven days later… 18 Aug 16-Sep
Petrol at the pumps pence per litre 110.22 111.93 +1.71 +1.6%
Diesel at the pumps pence per litre 111.22 113.11 +1.89 +1.7%

Based on a 7-day lag, it’s clear that both the price of oil and the retail price of petrol and diesel have risen over the period being discussed. That seems more reasonable.

The oil price rose by 1.1% (in pounds) or 3.5% in US dollars. The reason these percentages aren’t the same are that the USD/GBP exchange rate also changed during this time. Oil is always traded in US dollars, but movements in the US dollar oil price don’t always translate to the same change in costs for UK oil refineries.

Blame the taxman?

The cost of oil is only a small part of the total pump price of petrol and diesel. That’s why oil price changes are never fully reflected in the cost of fuel.

The chart below is taken from a fuel price report published by the government’s Office for National Statistics. It shows price changes (inflation) for oil, petrol and lubricants. Note how changes to the price of oil (blue line) are always much bigger than changes to the price of petrol (red line):

Crude oil versus petrol prices, 2008-2015
Source: Office for National Statistics

According to the RAC Foundation, the wholesale price of petrol and diesel when it leaves the refinery is currently about 28p. Of this, only a small part is the cost of oil. Refinery and oil shipping costs are also part of the mix.

Transporting fuel to garages costs around 1.9p per litre. Once it’s at the garage forecourt, around 5p per litre is added on to cover the retailer’s costs and profit.

The remaining amount — about 77p, or 70% of the pump price — is made up of fuel duty and 20% VAT.

While fuel duty is fixed at 57.95p per litre, VAT is charged as a percentage. So if the wholesale price of fuel rises, the amount of VAT we pay also rises. This is one reason why pump prices often appear to rise faster than oil — if the refinery price of fuel rises, we have to pay the extra fuel cost, plus more VAT.

The cheapest fuel for 7 years

What is certainly true is that throughout 2015 and 2016, British motorists have enjoyed cheaper petrol and diesel than at anytime since 2009. (To find the cheapest fuel in your area, click here)

In 2009, the oil price crashed but bounced back very quickly. The current downturn is proving to be much longer lasting — average petrol prices today are about 20p per litre less than they were at the start of 2014. Diesel is about 26p per litre cheaper.

This isn’t an attack on FairFuelUK. But I’m not impressed with the group’s latest figures. Nor am I convinced that cutting tax on fuel is a good idea.

History shows us that lower fuel prices encourage people to use more fuel. If that were to happen, the pressure on automotive manufacturers to create new low carbon vehicles would be eased.

With climate change and congestion both major issues in the UK, the last thing we need is for motorists to be encouraged to drive more or use more fuel. We need to change our habits. Unfortunately, high fuel prices are part of the medicine that’s necessary to cure our addiction to burning oil.

 

*For those that are wondering, I used the day’s closing price for Brent Crude and closing GBP/USD exchange rate to calculate these figures. Data from IG Index

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