The future of fuel prices
Since last December, fuel prices in the UK had remained at a consistent price of around £1 a litre – and even cheaper than that in some places. Drivers were able to fill up their tanks for the lowest price since 2009. In April however, something changed – and fuel prices jumped back up to 105p per litre on average; a sharp 3.4p per litre price hike. What caused this jump in price, and what does it mean for the future of fuel prices in the UK?
What makes the price of petrol increase?
The prices of fuel are influenced by three factors. Firstly, government cuts. On each litre of oil, the government takes a cut in fuel duty and a bit extra in Value Added Tax (VAT). This equates to around 65% of the entire fuel cost going straight to the government. The interesting factor in this is that this government fee remains largely fixed until budgets are announced.
The second biggest factor is fuel costs themselves. This fee is affected by costs of transporting the fuel, availability, exchange rates and a number of other factors. The smallest factor in the price of fuel is the stations themselves, which usually take around 2-5p per litre.
When prices fluctuate this is normally due to a combination of these factors. The price of oil is usually measured in barrels. A barrel of oil cost around $100 (around £70) in 2014, but now costs around $40 (around £28) in 2016. The reason we can see a fluctuation in prices at the moment is because barrel prices dropped below $40 around December, but started increasing again for the first time this month.
Though this remains dramatically cheaper than it was in 2014, the consistent government charges, combined with these fluctuations in cost-per-barrel, results in a continuously changing fuel price for drivers.
What does this mean for the future?
Petroleum is a non-renewable resource which means that unfortunately, at some point, it will run out. Experts aren’t certain when exactly we will run out, or even if it will be in this generation, but it is certainly something that may have a massive effect within the fuel industry in the future.
At present however, the fuel industry has never been more competitive. Increase in standards of travel around the world means it has become easier for countries such as Russia, Saudi Arabia, and the United States to transport fuel around the world. Add in the popularity of fracking and you have a thriving, competitive fuel industry.
Because of this, we can expect to see a consistent level of fluctuation in prices depending on the availability of oil from these countries and other altering conditions of transit. One of the factors which ultimately puts a holder on fuel prices becoming cheaper is the fixed government cut. Though this may change at points in the future, and is dependent on a great many things, at the moment it means that fuel prices should remain at a similar level.