In February average fuel prices dipped slightly by 0.4p per litre unleaded and 0.5p per litre diesel versus January. Prices are still higher than they were at the same point last year by over a penny. The last time fuel prices were higher during February was in 2014, which was when the price crude oil was above $100 a barrel. The main point of contention on price has been the how quickly petrol retailers have passed on reductions in the wholesale price and this has been a prevalent theme throughout the month.
Falling wholesale prices
The RAC first issued a request to the supermarkets at the beginning of February to lower their prices in light of the drop in wholesale prices. The cost of a barrel of crude oil fell by $5 at the beginning of February. The RAC hoped that supermarkets would drop their prices by around 3p a litre. The wholesale cost had dropped by 7% from 25th January to 7th February, meaning the cost of buying the fuel had already declined significantly.
The RAC firmly believed that the big four supermarkets had room to drop their prices as the average was sitting at 119.49p for petrol and 122.13p for diesel. Dropping their prices would see motorists paying less at around 8,500 forecourts across the country and would be a welcome boost for drivers.
(Credit – Stephen McKay)
Prices still rising
But as of the 7th February the price of fuel was still going up, reaching 122.17p for petrol and 124.91p for diesel. The RAC were keen to see the supermarkets reduce their prices from that point as the half-term holidays came around and knew they could afford to drop them by around 3p a litre. Some supermarkets were running promotions such as Tesco, who offered a whopping 10p a litre off fuel if you spent £60 or more in a single shop.
Regional differences also showed scope for changes as well. In Somerset, for example, the supermarkets were selling fuel around 10p lower than the average price around the UK and 7p a litre less than the average versus major petrol retail brands.
Double price cuts announced
Following ongoing pressure from the RAC on February 9th, ASDA led the way with a drop of 2p per litre and many supermarkets followed suit, such as Morrisons and Sainsburys with similar price cuts. During the same week, the cost of oil had fallen further to $61.46, the lowest price since the middle of November last year. The increased exchange rate also helped, meaning that the wholesale price of fuel also fell a little further.
A week later something unusual happened in that ASDA cut their prices again by a further 2p per litre taking prices down to an average of 116.8p per litre. The rest of the industry was taken aback by the change but did react a few days later, Morrisons and Sainsburys also dropped their pricing again, so a double price drop in the space of a week.
Kudos to the RAC
We should give thanks to the RAC for prompting the supermarkets to make these changes.
Simon Williams from the RAC commented: “The sharp drop in the price of oil gives them a perfect opportunity to reduce their pump prices by 3p. The fall in the wholesale fuel price gives them a great opportunity to turn up the heat in what has become something of a ‘cold pump price war’ in recent weeks.’
The recent drop in the price of oil has been caused by an unexpected increase in fuel stocks in the US, sparking fears of oversupply into what is traditionally a season of lower demand. In addition, the North Sea Forties pipeline, which was shut down in December due to a crack, has just reopened. This will bring 450,000 barrels of Brent crude oil a day on to the market, making prices less competitive.”
What’s the position now?
As we enter March the fuel price has steadied for the moment at an average 120.1p per litre unleaded and 122.9p per litre diesel. The biggest fear is what impact the extreme cold weather will have on pricing. Gas prices have rocketed in price from 90p per therm to 200p per therm in less than a week and there are potential shortages.
While this is not likely with petrol and diesel supplies, what may be an issue is whether tankers are able to get to petrol forecourts to deliver the fuel if there is too much snow and bad weather conditions. Our advice is fill up if you can now just in case as prices are quite reasonable.
What do you think of the RAC and their intervention in the market and acting as a Watchdog over the petrol retailers? Do you think pricing should be Government regulated? Let us know in the comments below.