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While everyone has been facing higher costs to tank up since conflict erupted in the Middle East two weeks ago, drivers of diesel vehicle are being hit harder
A fortnight is a long time in geopolitics and the events of the past fortnight have rocked the global economy. US and Israeli strikes on Iran began on February 28 and, just as drivers were starting to enjoy relatively affordable and static petrol and diesel prices, the cost of oil shot up overnight.
That led to immediate rises at the pumps. While all drivers are facing paying more right now, drivers of diesel vehicles might be wondering why the cost of their fuel has shot up so much faster than that of petrol.
On Wednesday, the RAC said diesel prices had risen by nearly 9% since February 28. Petrol prices were on average 6% more. That has translated to around 7p per litre added to petrol, whereas 16p on average has been added to diesel prices in the same time period.
On Thursday, RAC head of policy Simon Williams said: “Drivers tell us the cost of motoring is a major concern and fuel is a huge contributor to that, so making sure they’re paying a fair price at the pumps is essential. For that reason, we welcome the competition watchdog’s scrutiny of what’s happening on forecourts across the country.
“RAC fuel watch data shows average prices have rocketed in under two weeks, with the average price of petrol increasing by 7p to 140p a litre and diesel by 16p to 158p. This has added £4 and £8 to the cost of filling up a family car.”
With oil prices remaining around $100 per barrel on Friday morning, it seems any reprieve for drivers in the UK and around the world rests with the de-escalation of the latest conflict. There is also increasing pressure for Chancellor Rachel Reeves to delay her decision to gradually phase out a 5p cut to the levy, starting with a 1p increase from September this year.
Edmund King, president of the AA, said: “As the conflict in the Middle East continues, the global increase in oil prices will hurt inflation, particularly with the diesel price hikes. As most goods and services are delivered by diesel vehicles, this will lead to price rises which the consumer will be stung with. We strongly encourage the Chancellor to delay the staggered reintroduction of the 5p fuel duty discount in order to offer some breathing space for hard-pressed households.”
Prime Minister Sir Keir Starmer has since said the Government will keep the situation “under review” in light of the Middle East conflict.
Why diesel prices are rising faster than petrol
Steven Greenall, protection advisor at Rayleigh-based Protect & Lend, explained why diesel is rising quicker than petrol.
He said: “Put simply, diesel is a more complex carbon product. It is more expensive to refine from crude oil than petrol, the UK is more dependent on the importation of diesel than petrol, and margins are increased more than petrol at the pump.”
Rohit Parmar-Mistry, founder at Burton-on-Trent-based Pattrn Data, added: “Diesel is not just ‘oil plus tax’. At the pump it is driven by the middle distillate market (diesel, jet fuel, heating oil), and that market can tighten even when petrol is relatively well supplied. Right now diesel is likely seeing a wider ‘crack’ spread: refiners are charging more margin to turn crude into diesel because inventories are lower and supply is less flexible.
“HGVs, vans, construction and logistics keep demand steady, while jet fuel competes for the same refinery output. Maintenance or unplanned outages hit diesel harder. Geopolitics matters too. The current Iran war is pushing up risk premia via shipping disruption, insurance costs and shifting trade flows.”
Competition watchdog puts retailers ‘on notice’
On Thursday, the competition watchdog said it had put fuel retailers “on notice” that it was stepping up monitoring of petrol and diesel prices in light of the Middle East conflict. The Competition and Markets Authority (CMA) told firms responsible for thousands of fuel stations across the country that it was bringing forward formal requirements to supply revenue, costs and sales data.
The watchdog said the move would speed up its review of fuel margins made by businesses since the conflict began. The CMA said it would also consider how quickly fuel prices rise and fall as wholesale costs change and whether there is evidence of so-called “rocket and feather” pricing – where prices shoot up quickly when oil costs rise, but reduce slowly when oil costs fall.
While it recognised that businesses across the economy were likely to face significant pressures from rising energy costs, which could affect prices, it said fuel stations “should not exploit the situation”, adding that any evidence of this would be made clear in its update on pricing, “which will be published as soon as possible”.
The CMA’s executive director for markets, Juliette Enser, said: “While price increases might be inevitable because of rising wholesale costs, it is important that those increases reflect genuine cost pressures. We will be closely scrutinising and reporting on what’s happening with fuel prices and call out any concerning behaviour.”
