Fleet News

Pricewatch: fuel costs

The continuing threat of terrorism and concerns about rapidly diminishing supplies of oil have begun to push up fuel prices again.

Factors such as instability in the Nigerian oilfields, increased demand from the US and China and lagging refinery expansion have combined to send oil prices upwards.

Although the steady rise halted during July, crude oil prices rose by 10% to more than $78 a barrel, which could send UK pump prices even higher.

Average pence-per-litre prices for diesel and petrol hover in the high 90s – around 10p more than in January – and the prospect of £1 per litre is a real possibility.

  • VANISHING DIFFERENTIAL

    Early this month, the average price of a litre of petrol was 96.6p, according to the AA, while the average diesel price was 97p – a difference of just 0.4 pence per litre.

    In January, the difference was around 5p.

    So is this great news for diesel drivers? Has the premium that operators have had to pay for fuel finally been abolished?

    Alas, no. Rather than a cut in diesel prices, the change in differential is due to a rise in petrol prices caused by tight refining capacity.

    “Diesel has always been more expensive than petrol in the UK,” explains Mike Waters, head of market insight and planning at Arval.

    “But in the past two or three months the differential has pretty much disappeared. We have fielded a lot of questions about what’s causing it and whether it’s going to last.”

    Mr Waters believes the diesel premium will return as market pressure comes off petrol and pushes prices back down.

    And he warns that the premium could rise further as diesel car sales increase.

    “Refineries focus on improving the quality of diesel, rather than increasing the volume,” he says.

    “As demand for diesel cars grows so premiums could rise further due to tight supply.”

  • PSYCHOLOGICAL BARRIER

    If, as seems likely, prices for both diesel and petrol continue to rise and hit the £1-per-litre mark, fleet managers need to be careful of the psychological effect of such a milestone.

    Mr Waters warns of the danger of complacency when looking for the cheapest fuel supply.

    “Companies and drivers need to be careful if we go over £1 a litre that they don’t relax when it comes to keeping an eye on prices,” he says.

    “It’s the same psychological effect as when shops price something at £4.99 rather than £5.

    “Although it’s only a penny difference, psychologically it’s a lot larger. Once the price is over £1 a litre, when it goes up to £1.05 or £1.10 it doesn’t seem like much of a difference.

    “You might not notice it moving from £1 to £1.05 as you would from 97p to £1. When fuel prices were hitting £2 or £3 a gallon, there was the same issue.”

    Mr Waters says fleet managers need to remain vigilant. “It’s important to keep a close watch on the prices that are coming through,” he says.

    “From a government perspective it might make it easier again to bump up fuel duty. It would be harder to implement if you weren’t crossing that barrier.”

  • ALTERNATIVE FUELS

    But there might be a glint of light at the end of the tunnel.

    Scottish consultants Wood Mackenzie foresee a drop in prices as alternative fuels make up a larger share of the fuel market.

    Their report says this could even lead to an oversupply, which would send fuel prices plunging. However, they don’t envisage it happening until 2010.

    Rise in fuel prices

    Driving tips to save on fuel

  • Drive smoothly.
  • Avoid over-revving the engine.
  • Avoid fast driving in lower gears.
  • Avoid excess idling – turn the engine off in long queues.
  • Keep vehicles well-maintained.
  • Keep tyres at the right pressure.
  • Avoid carrying excess weight.
  • Plan your journey to avoid unnecessary mileage.
  • Avoid motorway fuel stations – they tend to be more expensive.
  • Fill up when you see a lower price – prices can range by 3p per litre in a week.
  • Drive less!
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