Oil prices are down - so why isn't the cost of fuel?

It's a debate that has raged since the end of the COVID pandemic but, despite regulatory scrutiny, it's fair to say there's been no clear answer to accusations that UK drivers pay over the odds for fuel.

What was once a promotional loss leader for supermarkets desperate for drivers to fill their car boots with groceries, unleaded and diesel costs have been unusually high for years.

Fuel retailers say there is a simple explanation: rising costs being passed on to motorists.

But critics argue there is a reason why the Competition and Markets Authority (CMA) has consistently found that we're paying more than we should be - and that the disparity between wholesale costs and pump prices has got worse in recent months.

So: who's right?

What the oil data tells us

Oil prices are well down on levels seen in January (between $75 and $82 a barrel) but fuel prices are clearly not.

As the chart shows, petrol and diesel have been largely on the rise since mid-June when Brent crude hit $78 per barrel.

Despite a couple of wobbles, oil costs have dipped sharply since, to a range of $62 to $64 per barrel and yet drivers are currently, on average, paying £1.37 a litre for petrol and £1.46 for diesel.

Compare those fuel costs to average pump prices in January, for example, (£1.39 for petrol and £1.45 for diesel) and a disparity is notable.

Prices can be affected by all sorts of factors including the value of the pound versus the oil-priced dollar and squeezes in supply of refined products on global markets. It all makes for a complicated supply chain.

There is another, emerging, factor to consider

It might surprise you to learn that the UK now has only four operational refineries to produce petrol and diesel after two major sites shut this year.

The decline has sparked an industry warning of a crisis due to high UK carbon charges, imposed by the government, that have made domestic fuel producers uncompetitive versus imports.

The loss of the refinery at Grangemouth this spring has been particularly acute as it left Scotland without domestic production and at the mercy of a more complicated and expensive delivery structure.

Fuel retailers say the impact has been minimal so far, mainly due to remaining UK refineries raising production.

The case for the prosecution

Quite simply, fuel price campaigners and motoring groups have long accused the industry of raising its profit margins.

Supermarkets focused price investment elsewhere as the cost of living crisis took hold but the days of Asda (before it was bought by the fuel-focused Issa brothers and private equity) leading a sector-wide fuel price war are long gone.

Reports by both the AA and RAC this week highlight price spikes despite a 5p slump in wholesale costs a fortnight ago.

The AA said: "At the height of the spike, it matched what had been seen in mid June. Then, the petrol pump average reached a maximum of 135.8p by late July.

It said that government data had since shown pump prices at levels not seen since March.

The body questioned the reasons behind that disparity and also pointed towards, what it called, a postcode lottery for pump costs with gaps of up to 9p a litre between towns only 10 miles apart.

The RAC declared on Thursday that pump prices rose at their fastest pace in 18 months during November, with diesel at a 15-month high.

The critics have also included regulators as monitoring of fuel retailers by the CMA since its original market study has consistently found that drivers have been excessively charged.

What's the fuel industry's position?

It pleads "not guilty".

The bodies representing retailers make the point that the CMA and its wider critics fail to take into account huge rises in costs they have faced over the past four years - costs which are being/have been passed on across the economy.

These include those for energy, business rates, minimum wage, employer national insurance costs and record sums arising from forecourt crime.

The Petrol Retailers' Association (PRA), which represents the majority of forecourts, told Sky News that average margins across the sector are the same today as they were a year ago at between 3% to 4% after costs.

It suggests no fuel for the fire surrounding those profiteering allegations but that rising costs have been passed on in full.

What has the regulator done?

The CMA's road fuel market study committed to monitor the market and recommended a compulsory fuel finder scheme to help bolster competition. That was two-and-a-half years ago.

Limited data has been widely available via motoring apps ahead of the start of the official scheme, expected in spring next year, which will bring real-time pricing into a driver's view for the first time.

The CMA hopes that by forcing each retailer to divulge their prices in real time, customers will vote with their feet.

In the regulator's defence

The CMA could argue that government has dragged its heels in implementing its fuel finder recommendation.

While the Conservatives accepted it, Labour is now pushing it through parliament.

The regulator can only act within the powers it has been given. It would say that it can't threaten or hand out fines until its recommendations are in play and they have been clearly flouted.

So who's right?

This is a debate all about transparency but we clearly don't have a full view on the complicated, and shifting, supply chain which can influence pump prices.

The CMA hopes that postcode lotteries for pump costs will ease once more drivers are aware of the ability to compare and shop around.

But the main reason why this issue remains unresolved is that the CMA's findings have been incomplete to date.

Its determinations that pump costs have been excessive have all been made without taking retailers' operating costs into full account.

Why we are closer to an answer

The CMA's next market update is expected within weeks and will, for the first time, take more extensive cost data into account.

A spokesperson told Sky News: "We recommended the Fuel Finder scheme to help drivers avoid paying more than they should at the pump, and the government intends to launch it by spring 2026.

"The scheme will give drivers real-time price information, helping them find the cheapest fuel and putting pressure on retailers to compete.

"We looked closely at operating costs during our review of the market, and they formed a key part of our final report in 2023.

"As we confirmed in June, we've been examining claims that these costs have risen and will set out our assessment in our annual report later this month."

The hope must be that both sides involved can accept the report's findings for the first time, to bring this bitter debate to an end once and for all."

(c) Sky News 2025: Oil prices are down - so why isn't the cost of fuel?