Page last updated at 11:03 GMT, Thursday, 2 February 2006

Why UK petrol prices remain high

By Bill Wilson
BBC News business reporter

Petrol being put into car
A large slice of the UK petrol price goes to the Treasury

Soaring profits at Anglo-Dutch energy giant Royal Dutch Shell and other oil firms have led to calls from motorists for station forecourt petrol prices to be cut.

Shell's figures come as motorists face prices of about 90p a litre at pumps.

Some groups, such as the Fuel Lobby - which last year unsuccessfully tried to make the government reduce tax on fuel - said the profits were excessive.

"The British motorist is being hammered by, if not excessive taxation, then excessive profiteering," it said.

Spokesman Andrew Spence said fuel users were "getting hit on all sides".

'No rip-off'

However, most of Shell's profits comes from finding and extracting oil, and then selling it on to the markets - where the price is very high at present due to a number of factors, including demand, political instability and acts of nature.

Very little profit comes from forecourt sales of fuel - which in the UK attracts among the highest taxes in Europe.

Oil companies cannot set the world oil price, which is set on the world markets
Ruth Bridger, AA

Nick Vandervell, of the UK Petroleum Industry Association (UKPIA), said: "Before tax, fuel prices in the UK are among the cheapest in Europe."

And AA Motoring Trust petrol price analyst Ruth Bridger added: "We are not being ripped off at the pumps.

"Oil companies cannot set the world oil price, which is set on the world markets."

We focus on delivery now and building the future
Shell chief executive Jeroen van der Veer

In the UK fuel duty is set at 47.1p for every litre of unleaded petrol and diesel while VAT is a further 17.5%.

Of the 90p a litre that the motorist pays, therefore, the Treasury receives 60.5p or 67%, and it costs the garage 23.2p to buy the petrol.

That leaves a margin of just 6.3p, or 7% of the litre price, for the forecourt, which also has to meet the cost of running the petrol station.

According to the AA, if a garage makes as much as a 2p profit out of a litre of petrol, "that is a lot".

Supermarket challenge

The purchasing power of supermarkets - which control 10% of petrol stations but sell 30% of fuel - has stopped petrol prices rising even further, says the AA.

As they have kept prices low other outlets have been forced to follow their lead.

Tanker filling up a Tesco petrol forecourt
Supermarket buying power is keeping prices down says the AA

However, fuel price website Petrolprices.com says that Shell, rather than any of the supermarkets, had the most competitively priced fuel in the quarter year from October to December.

Its research showed that Shell had 26 of the cheapest 100 forecourts in the UK, followed by Asda with 24 and Tesco with 21.

However, the Transport and General Workers Union has said Shell's records profits only serve to reinforce calls for a windfall tax.

"Shell have reaped the benefit of their own windfall through rising oil prices," said T&G General Secretary Tony Woodley.

"It is high time the government acted decisively and brought in a proper windfall tax. Part of this windfall should be handed back to the public through a one-off tax to help ease the pensions crisis facing thousands of workers."



video and audio news
See some drivers commenting on the profits



SEE ALSO
Shell reports record UK profits
02 Feb 06 |  Business
Car firms 'blocking green fuel'
27 Jan 06 |  UK Politics
Shell cuts North Sea exploration
17 Dec 05 |  Scotland
Shell buoyed by oil price surge
27 Oct 05 |  Business

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