Fuel Prices & Forecasts Price Explanation

Why are fuel prices so high?

Q: Why are fuel prices so high?

UK fuel prices are high primarily because of tax: fuel duty at 52.95p per litre plus 20% VAT together account for roughly 60–65% of the pump price. On top of that, global crude oil prices, the pound-to-dollar exchange rate, refinery costs, and retailer margins all contribute to what you pay. Prices vary significantly between stations, with supermarkets typically 3–8p per litre cheaper than branded forecourts.

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UK fuel prices are high because roughly two-thirds of every litre you buy is tax — fuel duty plus VAT — before retailers add their margin on top of wholesale crude oil costs. Global oil market movements, exchange rates, and how quickly retailers pass on wholesale changes all play a role in what you pay at the pump.

The Biggest Factor: Tax

Fuel duty: Fuel duty is charged at 52.95p per litre on both petrol and diesel. This flat-rate tax applies regardless of the pump price and is one of the highest fuel duty rates in Europe. 2

VAT on top: 20% VAT is then applied to the total price including duty, meaning you pay tax on top of tax. Together, duty and VAT account for roughly 60–65% of the pump price. 5

Freeze since 2011: Fuel duty has been frozen since 2011, meaning it has not risen in cash terms, but it still forms a large fixed cost in every litre sold. 5

Crude Oil and Wholesale Costs

Oil price is the base: Crude oil is priced in US dollars per barrel on global markets, and its price is determined by supply and demand, OPEC production decisions, and geopolitical events. 6

Sterling exchange rate matters: Because oil is priced in dollars, a weaker pound makes imports more expensive for UK refiners, pushing up wholesale costs even when the dollar oil price stays flat. 6

Refinery and distribution costs: Crude oil must be refined into petrol or diesel, then transported to forecourts. Refining capacity constraints and distribution costs add further to the pump price. 3

Retailer Margins and Market Behaviour

Retailers slow to cut prices: The CMA's fuel market study found that retailers have been slow to pass on wholesale price reductions to consumers, a pattern described as 'rockets and feathers' — prices rise fast but fall slowly. 4

Supermarkets vs branded stations: Supermarkets typically charge 3–8p per litre less than branded stations because they use fuel as a footfall driver. The same crude oil movements affect all retailers, but margins differ. 1

Regional price variation: Pump prices can vary by 10p or more per litre between stations in the same town, driven by local competition rather than underlying costs. 1

How to Pay Less Despite High Prices

Compare before you fill up: Since margins and local pricing vary so much, checking live prices before you drive to a station is one of the easiest ways to reduce your fuel spend. 1

Supermarkets are consistently cheaper: DESNZ weekly data consistently shows supermarket forecourts — Asda, Tesco, Sainsbury's, Morrisons — undercutting branded sites by a meaningful margin. 3