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These are the reasons why petrol prices are soaring


Three-hour long queues, the army on standby and UK Government pleas for motorists not to panic buy – the fuel shortage continues to bubble along.

According to Environment Secretary George Eustice, this is not as a result of Brexit nor an estimated 100,000 deficit in lorry drivers. Despite claims to the contrary and further shortages on supermarket shelves.

“The only reason we don’t have petrol on forecourts is people are buying petrol when they don’t need it,” he said, predicting things would soon go back to normal and people would “calm down”.

READ MORE: Will interest rates go up in 2022? Bank of England governor drops hint

In a recent move to get supplies back to a pre-panic level, the government has suspended competition law to allow oil companies to target fuel deliveries.

This would mean the firms would be able to share information and pin-point where fuel is needed most.

After a slump in oil prices during the peak of the Covid-19 pandemic, as demand dropped, the cost of a barrel of oil has now rocketed to $80 – the highest is has been since 2018.

How do petrol prices work?

Petrol prices normally depend on these main factors:

  • Combined wholesale cost, distribution cost and retail margin
  • Fuel duty owed to the UK Government
  • Value Added Tax (VAT)

Those old enough to remember the heady days of sub-£1 a litre fuel know how wildly prices can vary.

The UK has some of the highest petrol costs of any nation in Europe, but source the fuel from the same wholesalers as the rest of the continent.

Petrol prices in Britain are higher largely because of fuel duty, which stands at almost 60p per litre sold, making up half of a litre’s cost.

On every petrol purchase, there is also a 20 percent VAT charge and a small retailer profit margin of approximately five percent.

As with all of the world’s most valuable resources, prices can vary on many geopolitical issues.

For example, if Russia stops oil flowing through its pipelines or a nation like Saudi Arabia is unable to keep producing barrels, prices will soar.

Finally, the cost of transport and distribution is not directly passed on to customers, with wholesalers paying the price that makes up under two percent of the total price.




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