If you pay 130p for a litre of unleaded petrol or diesel then the breakdown would be something like this:
If you want to calculate the breakdown for different fuel prices then use the new Fuel Price Breakdown Calculator I've put together.
Looks like the Government is on the take?
Yes, the Government currently pockets around 62% of the price via taxes. And in practice more than this as they'll also collect tax on the oil company and retailer profits. But, given environmental arguments, fuel is an easy target for high tax. Fuel excise duty is currently charged at 58.95p per litre on unleaded petrol and diesel with a further 1p rise planned in April.
Are petrol stations making a mint?
Not really. They generally have a margin of around 5p per litre, so the price of fuel makes little difference to their profits - although they could be affected if high fuel prices encourage us all to drive more economical cars hence buy less fuel.
What about the oil companies?
The price that oil companies charge retailers is largely influenced by the oil price and the pound/US dollar exchange rate (as oil is priced in dollars). But are higher oil prices, taxes and exchange rates responsible for the full rise in petrol prices? Or are the oil companies further milking us by increasing their margins?
To try and find out I've run a rudimentary comparison against two years ago, when fuel prices were a third lower than now.
|January 2011||January 2009|
|Oil price per barrel $
|£/$ exchange rate
||£1 = $1.55
||£1 = $1.45|
|Oil price per barrel £
|Oil price has increased by £
|Petrol cost per litre
|Oil company price
|Expected oil company price
based on £ oil price change
|33.86p (16.56p + 104.5%)|
Have oil companies beefed up their margins?
The price of oil has more than doubled, even after taking a more favourable exchange rate into account - good news in itself for oil companies.
But the above calculations suggest the oil companies are charging significantly more - about 8p per litre - than you'd expect based on oil price increases in pounds. In fairness their processing and distribution costs have probably risen, because of rising energy prices, but my simple example suggests they might still be hiking their margins to boost profits.
I'm no expert in this area, so if you think my figures are wrong and/or have a better explanation please let me know.
Why motorists are probably doomed...
It seems to me that although it's the market that determines oil prices, rising taxes and oil company margins are pushing motorists ever closer to the brink. And higher fuel costs are a catalyst for higher prices elsewhere - something our ailing economy can ill afford.
Trouble is, the Government is stuck between a rock and hard place. Excise duty and VAT on fuel should raise well over £30 billion this year - reduce this and taxes will simply have to rise elsewhere to help plug the deficit. So don't expect the Government to help out.
How do our fuel prices compare others?
Well, we're a little better off than some of our European neighbours re: petrol prices, but paying more for diesel than all but one of our neighbours - and these figures were compiled before the recent VAT and fuel duty rises.
|Source: AA Fuel price Report December 2010|