Fuel recently hit the lowest price in four years, but our research has revealed that drivers were still being overcharged at the pumps.
In March this year, a flood of oil into the market coincided with the near total collapse of demand for fuel as countries were put into lockdown, and flights and freight were grounded. With so much oil in the market, and so little demand, the price of oil plunged in April to a 21-year low of $20 per barrel, compared with $69 in January.
This meant a significant drop in the price of wholesale fuel but, rather than passing on the full savings to drivers, we’ve found that sellers were pumping up their own margins.
Our analysis revealed:
Retailer margins doubled in March 2020, compared with the previous year
In April, the retailer margin was 17% of the price per litre compared with 4% for the same period in 2019
Supermarkets are the cheapest place to fill up your car, but not everyone is able to take advantage of the lower prices
Regional differences in the price of fuel, with Northern Ireland getting the best deal
Here we take a look at what retailer margins mean for the cost of fuel, how the cost of fuel is broken down, and where to buy the cheapest fuel.
The best way to save money on fuel is to buy an economical car. Only cars with low running costs, as proven by our independent lab and road tests, make it into our pick of the best cars.
Pumped up retailer margins
The week that lockdown was announced in the UK, the average retail margin, which includes the cost of overheads and profit for suppliers and retailers, jumped from around 10p/litre to nearly 18p – by far the biggest jump of any week in 2019 and 2020.
For the same week in 2019, the margin was just 8p/litre.
The graph below, based on data supplied by the AA, shows the price of petrol at the pump, minus wholesale costs and taxes. What’s left is the average margin, in pence per litre, that’s applied by fuel retailers.
Fuel retailer margin by date
Luke Bosdet, of the AA, said that despite the drops in wholesale prices, the ramping up of retailer margins led to pump prices that were higher than would normally be expected. He believes the average price of unleaded should have dropped to 98.9p at the beginning of May, and questions why savings weren’t passed on to motorists.
Not-for-profit campaign group FairFuelUK went further, accusing the industry of profiteering by keeping retail margins far higher than needed.
Industry trade body the Petrol Retailers Association (PRA) disputes the claims made by FairFuelUK. It said that retailers kept prices consistent with previous wholesale costs, amid falling demand, to ‘avoid significant losses’.
Gordon Balmer of the PRA told us that many fuel forecourts purchased wholesale fuel at a higher price pre-lockdown, and had to price fuel at the levels they did to avoid significant losses. He told us that demand in rural areas during the first few weeks of lockdown in March dropped to 20% of normal, yet even small independent fuel retailers remained open, providing fuel to essential workers and offering an alternative place to shop.
Money-saving driving tips – cut your fuel costs even further
The price of fuel per litre
The price per litre that drivers pay at the pump is made up of wholesale costs, fuel duty, VAT and the retailer margin (which includes overheads such as transport, wages, and the forecourt’s profit margin).
We calculated this breakdown (based on 111.25p per litre) on 14 April 2020, when the retailer margin was highest during lockdown – 17% of the total cost per litre. For the same week the previous year, the margin was at a very low 4%.
Breakdown of fuel costs
The average proportion of the price of a litre of petrol set aside for retailer margins was consistently between 7% and 8% from August 2019 until early March 2020. The highest the retailer margin had been since 2017 was 10%.
In the first week of lockdown, though, it jumped to 15% before rising even further to 17% in April.
The PRA said, in April, that fuel forecourts reducing prices further would result in hundreds or possibly even thousands of closures of small, family-run petrol stations.
Come May, and the PRA changed the message – it said the forecourt sector had a good chance of surviving the pandemic crisis. Some bigger independent petrol station groups – such as Motor Fuel Group, which has around 900 stations – are responsible for around 30% of the market. Some made savings of millions of pounds during lockdown, partly due to measures introduced by the UK government.
Annual fuel cost calculator – find out the running costs of your next car
Is fuel too expensive?
It’s tricky to say for certain that drivers are being ripped off at the pumps, but it certainly looks as though savings aren’t being passed on. There are no set rules on the margins retailers can apply and, crucially, no independent fuel watchdog.
The lack of regulations is one reason that motorway services are able to charge such large premiums for fuel compared to elsewhere, and it also has a role in regional differences.
Northern Ireland drivers get the best deal, while those in the South East pay the most on average. According to AA data, in the first week of lockdown the difference in price between Northern Ireland and the South East of England was as much as 8p/litre for petrol and 6p/litre for diesel.
This is simply because there’s a proportionally high number of forecourts in Northern Ireland, and therefore increased competition that keeps prices low.
Video: three tips to cut your fuel costs
Cheapest place to buy fuel
We analysed 10 weeks worth of data (16 March to 18 May 2020) for 1,500 petrol stations across the UK.
We discovered that petrol is generally cheaper in towns and cities than in rural locations. But supermarkets, even those in the countryside, are still cheaper than oil-company-owned petrol stations in cities.
Supermarkets were by far the cheapest place to buy, on average:
- 105.04p per litre at supermarkets
- 110.80p per litre at other fuel forecourts.
Supermarkets play a major role in controlling the price at the pumps, buying fuel more frequently than many other forecourts.
Simon Williams from the RAC told us that supermarkets sell 45% of all fuel, benefiting from lower deliver costs due to the volumes they buy and sell, and bringing footfall to stores with lower pump prices.
But Williams also told us that, often, changes in the wholesale price aren’t passed on to drivers as quickly as they could be by supermarkets. Supermarkets may instead use money-off vouchers to pass on savings, or wait to pass them on in headline-grabbing reductions.
Vouchers aren’t always the money-saver they seem. They often have high minimum spend requirements – Sainsbury’s and Tesco customers have to spend £60 in-store or online, for example. That means those spending less, including those who can’t afford the minimum spend, miss out.
Williams told us that if a supermarket is issuing vouchers, it’s a sign that drivers are being overcharged at the pumps.
Savings must be passed on
The oil market crash has highlighted serious issues with the uncapped margins being set by fuel retailers. Plus the lack of an independent regulatory body to monitor these.
A drop in the wholesale price must be fairly reflected at the pump and savings passed on to drivers, no matter where they buy their fuel.
What you can do to cut your fuel costs
Based on our analysis, you can save money by filling up at a supermarket. Although if you have a local and convenient garage you like using, do continue to give it your support.
Where you fill up is just one part of the puzzle, though. Driving an economical car will help you to save more money on fuel.
All of our car reviews tell you how much it will cost you to fill your tank and break down fuel costs and mpg, based on our own independent fuel economy data, so you can get an accurate idea of how much your next car is likely to cost you before taking the plunge.