Why Are Petrol Prices Rising? What Drives UK Pump Prices
Why are petrol prices rising? It's one of the most common questions UK drivers ask, and the answer isn't a single factor. Pump prices are determined by a chain of costs and market forces, from global crude oil prices through to the forecourt you choose. Understanding what drives petrol prices helps you make better decisions about when and where to fill up. Here's a breakdown of every factor that pushes prices up, and what can bring them back down.
What Determines the Price of Petrol in the UK?
The price you pay per litre is built from several fixed and variable components:
| Component | Typical share of pump price | Fixed or variable? | |-----------|----------------------------|---------------------| | Fuel duty | ~35–38% | Fixed (set at Budget) | | VAT (20% on total) | ~16–18% | Fixed percentage | | Wholesale fuel cost | ~30–35% | Variable (tracks oil price) | | Retailer margin | ~5–10% | Variable (retailer sets) | | Delivery & distribution | ~2–4% | Variable |
According to the RAC's pump price breakdown, tax (fuel duty plus VAT) typically accounts for 55–60% of what you pay per litre. That means even if the oil price fell to zero, you'd still pay around 75–80p per litre in tax and retailer costs alone.
To see how these components translate into actual forecourt prices near you, check live petrol prices in London or current prices in Manchester.
1. Global Crude Oil Prices — The Biggest Variable
Crude oil is the raw material for petrol and diesel. When the global oil price rises, wholesale fuel costs follow, and those increases pass through to the pump within days or weeks.
Oil prices are set by global markets and driven by:
- OPEC+ production decisions — when OPEC and allied producers cut output, supply tightens and prices rise
- Geopolitical events — conflicts in oil-producing regions can disrupt supply expectations and spike prices
- Global demand — economic growth increases energy demand; recessions reduce it
- Currency exchange rates — crude oil is priced in US dollars, so a weaker pound makes oil more expensive for UK buyers
The International Energy Agency (IEA) and OPEC publish regular oil market reports tracking these dynamics. When crude oil rises by $10 per barrel, the RAC estimates this typically adds around 3–5p per litre to UK pump prices once fully passed through.
2. Fuel Duty — The Fixed Tax Floor
Fuel duty is the single largest tax component of pump prices. The rate is 52.95p per litre for both petrol and diesel, set by HM Treasury and collected by HMRC.
This rate has been frozen since March 2011 (with a 5p temporary cut introduced in 2022 that was later made permanent). Because it's a fixed per-litre charge, it doesn't change with the oil price — it only moves when the government changes it at a Budget.
For a deeper explanation of how duty and VAT stack together, see our guide to how fuel duty works in the UK.
3. VAT — Tax on Top of Tax
VAT at 20% is applied to the total pump price — which already includes fuel duty. This means you pay VAT on the duty itself, not just on the fuel cost.
When pump prices rise, the VAT amount rises too. On a petrol price of 145p per litre, the VAT component is roughly 24p. If prices climb to 160p, the VAT portion grows to around 27p — meaning the tax take increases automatically with price rises.
The Competition and Markets Authority (CMA) has highlighted this compounding effect in its fuel market reports.
4. Wholesale Fuel Costs and Refining Margins
Between crude oil and the pump sits the refining process. Refineries convert crude oil into petrol, diesel, and other products. The cost of this conversion — the "refining margin" or "crack spread" — varies independently of the oil price. When refinery capacity is constrained (due to maintenance, closures, or supply disruptions), refining margins can spike even if crude oil prices are stable. The RAC has noted that UK refinery capacity has declined over recent years, making the UK more dependent on imported refined fuel, which adds cost and exposure to global refining margins.
5. Retailer Margins — The Forecourt Mark-up
Retailers add their own margin to the wholesale cost. This margin varies significantly between station types:
- Supermarket forecourts (Tesco, Asda, Sainsbury's) typically operate on thinner margins, using fuel to drive footfall into their stores
- Branded stations (Shell, BP, Esso) generally carry higher margins as fuel is a profit centre, not a footfall driver
- Motorway service stations carry the highest margins — often 15–25p per litre above local supermarket prices, as the CMA has documented
This is why Tesco petrol prices are consistently lower than Shell petrol prices for standard unleaded — the difference is margin strategy, not fuel quality.
For the full breakdown, see our supermarket vs branded fuel comparison.
6. The "Rocket and Feather" Effect
The RAC and AA have repeatedly highlighted an asymmetry in how price changes reach the pump:
- When wholesale prices rise, retailers pass increases through quickly — sometimes within hours
- When wholesale prices fall, the pass-through is slower — often taking days or weeks
This pattern is sometimes called the "rocket and feather" effect: prices shoot up like a rocket but drift down like a feather. The CMA has investigated this behaviour and noted it as a persistent feature of the UK fuel market.
For drivers, this means price rises hit your wallet fast, while price falls take longer to materialise. Monitoring wholesale price trends via RAC Fuel Watch or AA reports gives you advance warning of both.
7. Regional and Local Price Variation
Even when the national average is rising, the price you actually pay depends heavily on where you fill up. Local competition — or the lack of it — drives significant variation:
- Urban areas with multiple competing forecourts tend to have lower prices
- Rural areas with few stations tend to have higher prices
- Motorway services consistently charge the highest prices in the UK
The Competition and Markets Authority found that nearby forecourts can differ by 20p per litre or more for the same fuel. Our insights page tracks national and brand-level averages so you can see how your local prices compare.
What Makes Petrol Prices Fall?
The same factors work in reverse: lower oil prices (if OPEC+ increases production or demand softens), a stronger pound (making dollar-denominated oil cheaper), duty cuts (a government decision, rare but it has happened), increased local competition (new supermarket forecourts entering an area), and reduced refining margins (when capacity is ample and supply is smooth).
How to Protect Yourself From Rising Prices
- Compare prices before every fill-up — use live price data to find the cheapest forecourt near you rather than defaulting to the nearest station
- Choose supermarket forecourts — Tesco, Asda, and Sainsbury's consistently undercut branded stations by 3–8p per litre
- Avoid motorway services — fill up before long journeys at a local supermarket instead
- Monitor price trends — when the RAC or AA report a wholesale price drop, wait a few days before filling up if you can — the saving will reach the pump eventually
- Use loyalty schemes — Tesco Clubcard and Sainsbury's Nectar both offer points on fuel that reduce the effective price per litre
Frequently Asked Questions
Why are petrol prices rising?
Petrol prices rise when one or more of these factors increase: global crude oil prices, refining margins, retailer margins, or fuel duty. The most common driver is a rise in the oil price, caused by OPEC+ production cuts, geopolitical disruption, or increased global demand. A weaker pound vs the dollar also makes oil more expensive for UK buyers.
How much of the petrol price is tax?
Approximately 55–60% of the pump price is tax — fuel duty (52.95p per litre) plus VAT at 20% applied to the total price including duty. The RAC publishes a regular breakdown showing these components.
How quickly do oil price changes reach the pump?
Rises typically pass through within days — sometimes hours. Falls take longer, often one to two weeks. This asymmetry, known as the "rocket and feather" effect, has been documented by both the RAC and the CMA.
Can the government reduce petrol prices?
The government can cut fuel duty (the main lever) or reduce VAT on fuel. Duty has been frozen at 52.95p since 2011, with a 5p cut made permanent in 2022. Any further change would require a Budget decision. The government cannot directly control oil prices or retailer margins.
Will petrol prices come back down?
Petrol prices do fall when the underlying drivers reverse — lower oil prices, stronger sterling, or reduced refining margins. However, the tax floor (duty + VAT) means prices can never fall to very low levels regardless of oil market conditions. Monitoring national average data helps you spot when a downward trend is underway.