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Is the price of petrol and diesel set to hit 86p a litre?

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Written by: Adam Lewis
14/01/2016
The price of a litre of petrol and diesel could fall to as low as 86p owing to the freefalling price of oil, according to the RAC.

If the price of a barrel of oil falls to $20, pump prices should fall to about 90p a litre at supermarkets and other cheap fuel forecourts. However if the oil prices drops to the $10, which some analysts predict, the RAC says it could pave the way for petrol and diesel to hit as low as 86p a litre.

Since the beginning of December the oil price has fallen 30% from $43.26 to a 12-year low of $30.06 on 11 January. However the RAC says wholesale fuel prices have not reduced as much as they could have owing to the pound weakening against the dollar by 4.5% over the same period.

RAC fuel spokesman Simon Williams said: “With no apparent end in sight to the freefalling price of oil, motorists can expect some really low fuel prices in 2016. Breaking through the pound a litre price point for both petrol and diesel was clearly a welcome landmark, but it looks as though there is more to come.

“At the moment, however, we have a situation where retailers still need to pass on more wholesale price savings on diesel to motorists at the pump, as the wholesale price is still 3p a litre cheaper than that of petrol. We should really be seeing diesel priced several pence cheaper than petrol on every forecourt, to the point where the average price of diesel goes below that of petrol. In many areas of the UK the price of fuel is sadly far higher than it should be: we would urge every fuel retailer to price fuel on their forecourts so that it more fairly reflects wholesale prices.”

However Williams added there is a limit as how low prices can fall, with fuel duty and VAT making up the lion’s share of the price of a litre of petrol and diesel. Indeed he says even if the fuel was given away and the retailers did not  take a margin, the price of a litre would still be 70p.

“Every motorist should know that the tax-take at £1 a litre is 75%, and at 86p a litre it rises to a staggering 84%. Strangely, this means that VAT alone would be 14p, which would be more than the cost of the fuel and the retailer’s margin. Sadly, the Chancellor looks likely to put duty up in the Budget in March for the first time since January 2011. We would urge him not to use lower fuel prices as an opportunity to extract even more tax from the motorist at the pumps.”

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