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Wednesday, 3 January, 2001, 17:40 GMT
Q&A: Should petrol be cheaper?
Graph showing petrol and oil prices
With crude oil prices having fallen about 30% since September's fuel crisis, some petrol retailers are beginning to cut their pump prices.

But why are the price cuts so small and can we expect to see any more? BBC News Online explains.

Why are some retailers reducing their petrol prices?

The price of crude oil - the raw material from which petrol (gasoline) is made - has dropped to about $24 a barrel from more than $35 a barrel last October. This has led to a reduction in wholesale petrol prices and allowed retailers to pass on to customers some of the savings.

Who is selling cheaper petrol and how much cheaper is it?

Several supermarket chains have trimmed about one penny a litre off the price of unleaded petrol. Asda, Sainsbury's and Tesco are all selling unleaded for about 78p a litre while the north of England chain Morrisons has cut its prices to 75.8p a litre.

What about the big oil companies?

Most of the service stations operated by the big oil companies, such as Esso, Shell and BP, are holding out against lower pump prices. Their price changes are determined as much by local competition considerations as by international crude prices. If one of the companies makes a move, the others are likely to follow.

Why are the petrol price cuts so small when crude oil prices have fallen so steeply?

Crude oil is only one factor influencing the retail price of petrol. In the UK, the crude oil and the cost of refining it into petrol accounts for less than 20% of the final cost of a litre at the pump.

The remainder is mostly taken up by fuel duty and valued added tax (VAT).

Esso claims that a retailer makes only about 5p for each litre of unleaded sold for 84p, with 61p going straight to the government in taxes.

The retailer's 5p has to cover other expenses including transportation, storage and processing as well as credit card charges, which alone work out at more than 1p a litre, according to Esso.

Competition can also be fierce. Shell claims not to have made a profit selling petrol in the UK for three years.

Despite this, is the motorist being hard done by?

On the face of it, yes. Wholesale petrol prices have dropped to early 2000 levels but pump prices are about 4p a litre higher on average than a year ago. Accusations of profiteering are again being made.

However, retail prices can take some time to follow wholesale price movements. Aside from a general reluctance to reduce prices, there is also an element of caution involved - retailers like to be sure any wholesale price changes are trends rather than blips.

Nonetheless, retailers often appear to be quicker at passing on price rises than price reductions.

Can the government force the oil companies to cut retail petrol prices?

No, not directly. The energy secretary Helen Liddell is due to raise the issue of pump prices in routine meetings with oil companies in the coming weeks but no big announcements are expected.

If the government did want lower petrol prices, one option would be to freeze duty so that prices effectively fall as inflation rises.

This is what motorist groups such as the AA are calling for.


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03 Jan 01 | UK
22 Sep 00 | Business
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