Why Do Petrol Prices Go Up and Down? UK Fuel Pricing Explained
UK petrol prices can swing by 10–20p per litre in a matter of weeks. Understanding what drives those changes helps you know when to fill up and when to wait.
What Makes Up the Price of Petrol?
Every litre of petrol you buy is made up of four main components. At a pump price of around 140p/litre, here's roughly how it breaks down:
A fixed tax set by the UK government. Currently 52.95p per litre — unchanged since 2022. Diesel and petrol pay the same rate. This goes directly to HM Treasury.
VAT is charged at 20% on the final pump price — including on the fuel duty itself. So you pay tax on tax. As fuel prices rise, so does the VAT collected.
The wholesale cost of crude oil, determined by global supply and demand. Priced in US dollars, so the GBP/USD exchange rate directly affects UK prices.
The forecourt's profit margin, plus distribution, storage and retail costs. Supermarkets typically operate on lower margins than branded forecourts.
Percentages and amounts are approximate based on ~140p/litre UK average. Figures vary with oil prices.
The Biggest Driver: Global Crude Oil Prices
Crude oil accounts for roughly a third of the pump price, but it's the most volatile component — and the main reason prices swing week to week. The benchmark price is Brent Crude, which is determined by:
- •OPEC+ production decisions — the cartel of oil-producing nations controls global supply. When OPEC+ cuts production, oil prices rise. Saudi Arabia and Russia are the dominant players.
- •Global demand — economic growth in China, the US, and India drives demand. Recessions suppress demand and push prices down.
- •Geopolitical tension — conflicts in oil-producing regions (Middle East, Russia-Ukraine) create supply uncertainty and push prices up.
- •US shale oil production — America is now the world's largest oil producer. High US output can counterbalance OPEC cuts.
Changes in the crude oil price typically take 2–4 weeks to feed through to UK pump prices, as oil must be refined and the fuel transported and distributed.
The Hidden Tax: Fuel Duty and VAT
UK fuel duty is 52.95p per litre — the same fixed amount regardless of the pump price. On top of that, VAT at 20% is charged on the entire pump price including the duty itself. So if the pre-tax fuel costs 60p and duty is 52.95p (subtotal 112.95p), VAT adds another 22.6p — giving you a pump price of around 135.6p.
The fuel duty freeze since 2022 (previously planned to rise with inflation each year) has saved drivers approximately 5–10p per litre compared to the escalator that was in place from 1993 to 2000.
Tax as a share of the pump price:
At 140p/litre pump price: ~77p goes to HMRC (55% of the pump price)
Exchange Rates: Why the Pound Matters
Crude oil is bought and sold globally in US dollars. UK importers must convert their pounds into dollars to purchase oil — so when the pound weakens against the dollar, every barrel costs more in sterling.
This is why events that weaken the pound — such as the 2022 mini-budget, Brexit uncertainty, or Bank of England interest rate decisions — can push up UK pump prices even when global oil prices haven't moved. A 5% fall in GBP/USD typically adds around 2–4p per litre at UK forecourts.
Supermarket Competition: The Price Driver Nobody Talks About
One of the most important factors in keeping UK retail fuel prices down is competition from supermarket forecourts. Tesco, Asda, Morrisons and Sainsbury's account for a large share of UK fuel sales and consistently undercut branded forecourts by 3–8p per litre.
The Competition and Markets Authority (CMA) found that supermarket competition had helped reduce retailer margins, particularly after the record high margins seen in 2022. Independent forecourts and branded stations near supermarkets are forced to remain competitive.
Why Prices Rise Faster Than They Fall ("Rockets & Feathers")
A well-documented phenomenon in UK fuel pricing is that pump prices rise quickly when wholesale costs increase, but fall slowly when wholesale costs drop. The RAC, AA, and CMA have all drawn attention to this asymmetry.
The explanation is partly structural: retailers buy fuel in advance and have existing stock at higher prices. But CMA research also found evidence of deliberate pricing delays that benefit retailers. Supermarket competition has helped address this — they tend to pass on wholesale savings more quickly to win customers.
Fuel Price FAQ
How much tax is in a litre of petrol?
At a typical pump price of around 140p per litre, tax makes up approximately 75–80p. This includes 52.95p fuel duty plus around 23–25p in VAT (20% of the full pump price including the duty). That's over 55% of the pump price going to the government.
Why don't petrol prices fall as fast as they rise?
This is known as "rockets and feathers" pricing — prices rocket up when wholesale costs rise but fall like a feather when they drop. It's a well-documented pattern in UK fuel retail. The Competition and Markets Authority (CMA) investigated this and found supermarket price competition has helped reduce the gap, but the lag still exists.
Why is diesel more expensive than petrol?
Despite paying the same fuel duty, diesel tends to be 3–15p more expensive per litre than petrol. This is because diesel is in higher global demand from shipping, heavy goods vehicles, and heating oil (which is the same base product). Refinery capacity and European demand also push diesel prices higher.
Does the pound's value affect petrol prices?
Yes, significantly. Crude oil is priced in US dollars globally. When the pound weakens against the dollar (e.g. post-Brexit, 2022 mini-budget), UK fuel importers pay more in sterling for the same barrel of oil. A 5% drop in GBP/USD can add 3–5p to the pump price over time.
What is Brent Crude and why does it matter?
Brent Crude is the international benchmark oil price, extracted from North Sea oil fields. It's priced in USD per barrel. The UK uses Brent Crude pricing as the reference for petrol and diesel costs. When Brent Crude rises — due to OPEC production cuts, geopolitical tension, or high demand — UK pump prices follow within 2–4 weeks.
When is the best time to fill up?
Monday and Tuesday are statistically the cheapest days at UK forecourts. Prices typically peak Thursday to Sunday as demand rises. Supermarkets tend to update prices weekly. Using Fuelr to monitor live local prices lets you spot dips and fill up strategically.
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