ECONOMY

Why is diesel more expensive than petrol? Difference between fuel costs explained and if prices will fall

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Fuel prices across the UK continue to rocket, putting ever-growing pressure on the wallets of hard-press drivers.

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Drivers of diesel vehicles are facing an even tougher time. According to the RAC, the average cost of a liter of the fuel reached 170.09p on Friday (11 March) – an increase of 13p on Monday’s price.

Despite being cheaper than petrol in some parts of the world, in the UK diesel has been the most expensive fuel for many years and the gap appears to be widening.

Why is diesel more expensive than petrol?

The cost of diesel can be broken down into the same basic elements as petrol – production cost and taxation.

Both petrol and diesel are subject to the same 57.95p per liter fuel duty and VAT is applied at 20% on both as well, so the extra cost comes down to the production and supply costs.

Fuel prices across the UK continue to rocket, putting ever-growing pressure on the wallets of hard-press drivers (AFP via Getty Images)

Historically, UK refineries have struggled to meet demand for diesel and the country has had to import the fuel from abroad, with up to half its supplies coming from overseas. That increases its production and transportation costs relative to petrol, which retailers then pass on to customers.

Diesel is also used as a heating fuel in some countries, meaning there is greater competition for supplies, leading to higher wholesale prices.

According to the RAC’s Fuel Watch service, the wholesale price of diesel is currently around 81p per litre, compared to 67p per liter for petrol. On top of that, delivery and oil company costs are around 0.5p per liter more for diesel and biofuel additives cost 5p per liter more for diesel than petrol.

The situation could also be set to get worse due to the war in Ukraine. The UK imports around half its diesel needs, with between 15 and 20% coming from Russia. With the UK planning a phased ban on Russian oil and road fuels, that could lessen supplies which would inevitably lead to even higher prices.

According to Coachthe Netherlands is the UK’s second largest supplier of diesel but it also buys a large proportion of its crude oil from Russia.

With several other countries considering cutting ties with Russian suppliers, demand on supplies from elsewhere would increase with predictable effects on costs.

There have also been suggestions in the past that retailers are happy to charge more for diesel in order to keep the price of petrol down. The belief is that private car owners, most of whom drive petrol cars are more likely to shop around for the best deal than business users who top up with diesel.

However, the latest figures from the RAC’s Fuel Watch suggest that retailer profit margins on diesel are currently 2p per liter lower than on petrol.

When will prices stop rising?

The current global situation means there is no immediate end in sight to price rises.

While the war in Ukraine is affecting the marketsprices were already rising sharply as economies worldwide returned to pre-pandemic levels and oil producers were struggling to meet the rising demand.

The RAC’s fuel spokesman Simon Williams warned: “Wholesale fuel prices have already risen dramatically this week, so more pump price increases in the coming days are inevitable.”

He called on the Chancellor to immediately cut VAT on petrol and diesel to ease the burden on drivers.

The only faint glimmer of hope is that the International Energy Agency announced last week that its members had agreed to release 60 million barrels of oil from emergency stocks. This could help calm the market volatility, although it is unlikely to bring any dramatic reduction in prices at the pumps.

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