The aftermath of Ukraine War-UK’s gasoline & diesel price hike sufferings.
Gasoline and diesel prices in the UK have peaked due to the aftermath of the Ukraine war and the possibility of a Russian oil embargo, and today (Monday), the price of a litre of diesel crossed the 1.80-pound mark despite the Government’s decision to reduce fuel taxes. The cost of a litre of diesel, which reached 1.79 pounds last March, had fallen by a few pence in recent weeks. Still, at the same time, the possibility of a Russian oil embargo by European countries exceeded 1.80 pounds, which is unprecedented in British history.
The price hike of gasoline & petrol in the UK
The average pump prices of petrol and diesel in the UK have hit record highs for the second time in the space of a week. According to the latest RAC Fuel Watch data, unleaded petrol now costs an average of 168.24p per litre, while diesel stands at 181p per litre. Earlier in the week, petrol and diesel had reached then-highs of 167.64p and 180.29p per litre. Before that, previous records had both been set in late March, when petrol cost an average of 167.30p and diesel was 179.90p per litre. It now costs £92.53 to fill an average 55-litre family car with petrol, or £99.55 with diesel.
The average is even higher at motorway service stations, where petrol averages 186.68p and diesel is 197.3p per litre. RAC fuel spokesperson Simon Williams said: “So far in May, a litre of unleaded has rocketed by more than 5p a litre and diesel by 3.5p. Since the start of the year, it’s a far bleaker picture as petrol is 22.5p higher and diesel an astronomical 32p. “While wholesale prices dropped, indicating we may have passed the peak, drivers should brace themselves for further pump price rises as retailers who have had to buy new stock this week pass on their increased costs in the coming days. Drivers badly need further help from the Government, particularly as the Treasury benefits considerably from the windfall that 20 per cent VAT brings them on these record-high prices.”
The price of Brent crude rose by 4.6% to $102 per barrel after Western nations imposed new sanctions on Russia – one of the world’s largest energy producers. Petrol price movements in the UK are mainly determined by the price of crude oil, and the exchange rate between the dollar and the pound, because fuel, like oil, is traded in dollars. Although the UK imports just 6% of its crude oil from Russia, it would still be affected by global wholesale prices rising.
UK consumers are already paying a high fuel price, with demand surging following the easing of Covid restrictions. From fuel consultancy firm Portland said Stevie Irwin, said prices had risen due to concerns over oil and gas pipelines that travel through Ukraine war. He said there was “potential for enormous supply disruption” if Russia retaliated against sanctions and used oil “as a weapon”. “It’s impossible to know what kind of trajectory we are looking at for oil prices over the coming weeks,” he said. However, Mr Irwin added that price was a more significant concern than supply, as the US and Saudi Arabia are substantial oil exporters.
Why are the fuel prices going up?
Russia is one of the world’s largest oil and gas producers, so any disruptions to its production processes have a global impact. With Russia having launched a full-scale invasion of Ukraine and facing international sanctions, there’s potential for significant supply disruption. Russia produces 4.5 million barrels of oil each day, and only Saudi Arabia produces more. The sanctions levied against Russia have targeted banks and oligarchs rather than the country’s energy sector. Still, Germany’s postponement of the Nord Stream 2 gas pipeline will affect the energy market overall. Russia can also reduce oil exports to Europe in response to economic sanctions. Experts suggest that Saudi Arabian oil fields could struggle to increase production sufficiently to counter such measures. On 1 March 2022, the oil price jumped by $10 to $112.99 a barrel in response to the Russia-Ukraine war.
The RAC predicted this was likely to take the average price of petrol towards 155p a litre and diesel to 160p. The oil price went on to hit $137.72 a barrel on 8 March – the highest it has been since 2008, although it fell to $109.98 by the end of the month. In April 2022, the oil price dropped under $100 on three occasions but finished the month at $108.62 a barrel. In May 2022, fuel prices have continued to fluctuate and are currently around $113 a barrel. When oil prices rise, fuel retailers often pass on the cost to consumers at the pumps, although they can absorb some of the increases, as they did in January 2022.
Fuel retailers have an essential role to play in fuel prices. Competition between the ‘big four’ supermarkets Asda, Tesco, Morrisons, and Sainsbury’s has helped reduce expenses in the past – when one supermarket giant cuts its fuel prices, others often follow. But in 2021, fuel retailers were heavily criticised for not cutting the fuel cost at the pumps when the price of oil dropped towards the end of the year. The UK Government also has a significant influence on fuel prices as both fuel duty and VAT make up most of the cost of petrol and diesel.
Can Boris Johnson ease these challenging situations?
British Prime Minister Boris Johnson said the Government could not help everyone through the current cost-of-living crisis and had to remain prudent with its spending to avoid stoking an inflationary spiral. Johnson acknowledged that the Government could not provide enough support to offset the higher costs immediately but said it was working to deal with prices over the medium and long term. “I accept that those contributions from the taxpayer – because that’s what it is, taxpayers’ money – isn’t going to be enough immediately to help cover everybody’s costs,” he said. Although you’re quite right to point out that there is an inflationary risk and it’s very severe, it could worsen, and that knocks on to interest rates, and that knocks on to the cost of borrowing for everybody,” he said.” And I’m sorry to say this, but we have to be prudent in our approach.”
Finance minister Rishi Sunak has said he will wait to see how energy prices behave in the coming months before deciding what further support might be necessary when he delivers a budget statement.
Conclusion.
As Russia’s invasion of Ukraine piles upward pressure on oil and gas prices, there are calls for the U.K. Chancellor of the Exchequer Rishi Sunak to alleviate a mounting cost-of-living crisis before taxes and domestic energy bills rise next month. With petrol and diesel already at a record, economists warn that food and energy could push inflation into double digits later this year. Successive Conservative governments have frozen fuel duty for 12 years. But at 57.95 pence per litre, it makes up more than a third of the current price charged at the pumps. He’s now under pressure to cut it, with Tory lawmakers Jake Berry and Robert Halfon among those bringing it up in the Commons in recent days. Neighbouring France is already providing a 15 euro-cent-rebate per litre, and Germany is considering a proposal for compensation on motor-fuel bills.
