The UK average unleaded today is 169.4p and diesel 191.2p. That figure is the result of a chain of forces that few people think about. If you’ve filled your tank recently, you’ve probably noticed the price at the pump. But why does it change so often? What’s actually in that litre you’re paying for?
The four things in a litre
Every litre of fuel at the pump is made up of four parts. Wholesale fuel costs make up the biggest chunk, roughly 60% of the price. Then there’s fuel duty, which is a flat 52.95p per litre, frozen until the end of 2026, then rising to 55.95p on 1 January 2027 and 57.95p on 1 March 2027. VAT follows at 20%, and the retailer’s margin covers the rest. Think of it like this: if the wholesale price of fuel goes up by a certain amount, the final price at the pump will rise by about the same amount, plus the taxes and margins.
Fuel duty is set by the government, but it’s not fixed forever. Every Budget, ministers can adjust it. Right now, it’s 52.95p, but if the Chancellor changes it next year, that number will shift. VAT is trickier because it’s applied to the entire price, including the duty. So you’re paying tax on tax, which adds to the total.
If you’ve ever wondered why a litre of fuel costs more than the wholesale price alone, it’s because of these layers. Retailers add their own margin to cover running the station, staff costs, and the overhead of being in a particular location. That margin can vary depending on the type of station. Independent stations might charge more to stay afloat, while big chains can absorb some costs through economies of scale.
Why the wholesale part moves
The wholesale price of fuel is the most unpredictable part of the equation. It’s driven by three main factors: the cost of crude oil, the value of the pound against the dollar, and the costs of refining and transporting the fuel.
Crude oil is the raw material. If global demand for oil increases, or if a major oil-producing country has a crisis, the price of crude jumps. That’s why fuel prices often rise during geopolitical tensions.
The pound’s strength against the dollar also matters. Oil is priced in dollars, so if the pound weakens, it takes more pounds to buy the same amount of oil. That’s why fuel prices tend to go up when the UK economy stumbles. A weaker pound is often a sign of inflation or uncertainty, which can hurt the economy and push up the cost of imports.
Refining and supply are the final pieces. Refineries turn crude oil into usable fuel, and if a refinery goes offline for maintenance or a strike, the cost of processing oil goes up. Similarly, if a major pipeline breaks down, it can cause delays and push prices higher.
Duty and VAT: the hidden tax burden
Fuel duty is straightforward, but it’s not something you can ignore. At 52.95p per litre, frozen until the end of 2026, it’s the second-biggest cost after wholesale. It will then rise to 55.95p on 1 January 2027 and 57.95p on 1 March 2027. If the government lowers or raises this rate, it changes the final price. You can check the current rate on the price trends page, but remember that Budgets can tweak it.
VAT is where things get more complicated. It’s 20% of the total price, including the duty. So if you’re paying a certain amount for a litre of petrol, the tax alone is a significant portion. That’s why cutting fuel duty might not always bring prices down as much as you’d expect.
The tax burden is especially heavy for drivers who use their cars a lot. This is a key reason why some politicians argue for reducing fuel duty or replacing it with other taxes.
Why prices rise faster than they fall
Fuel prices are famous for their “rocket and feathers” pattern. Prices shoot up quickly but drop slowly. The Competition and Markets Authority's 2023 study estimated drivers can save up to 9 pounds a tank by shopping around. The reason? Retailers often pass on wholesale cost increases immediately. But when prices fall, they’re slower to adjust, sometimes waiting for margins to be restored.
This isn’t just about greed. It’s about how the market works. Fuel retailers are often locked into long-term contracts with suppliers. If the price of crude oil drops, it can take time for those contracts to adjust. Meanwhile, when prices rise, retailers may have no choice but to pass the cost on to you quickly.
There’s also a psychological factor. Drivers tend to notice price increases more than decreases. A rise feels sharp, but a drop can be missed. Retailers may exploit this by delaying price cuts to maximise their margins.
Why your local station differs from the average
You’ve filled up at a station that’s cheaper than the average. Or maybe the opposite. Why? It’s down to competition, location, and the type of retailer.
Supermarkets and big chains often have more ability to negotiate lower prices with suppliers. If there’s a Tesco or Sainsbury’s nearby, they might offer a better deal. Stations on motorways are another story. They’re often more expensive because they’re in high-traffic areas and have higher operating costs. Stations near fuel terminals, on the other hand, can be cheaper because they’re closer to the supply chain.
Even the size of the station matters. Independent stations may charge more to cover their costs, while larger chains can spread their expenses across more customers.
The type of station also plays a role. Some stations offer discounts to customers who pay by card or use their loyalty schemes. Others might offer lower prices on certain days of the week. If you’re a regular, it’s worth asking whether they can offer a better deal.
What you can do about it
You don’t have to sit back and wait for prices to change. There are a few things you can do. First, check for the cheapest fuel near you. It’s a quick way to find the best prices in your area.
Second, keep an eye on price trends. If you know when prices are likely to drop, you can plan your fill-ups accordingly. Third, consider using apps or websites that track prices in real time. Some stations even offer loyalty schemes that give you discounts on specific days.
Finally, if you’re a regular at a station, don’t be afraid to ask. Some retailers are more willing to negotiate prices if you’re a frequent customer.
Common questions
Why do prices change so often?
Fuel prices are tied to global markets. Crude oil, exchange rates, and supply chain issues all influence the cost. That means prices can shift daily.
How much of my fuel bill is tax?
Fuel duty is 52.95p per litre, frozen until the end of 2026, then rising to 55.95p on 1 January 2027 and 57.95p on 1 March 2027. VAT is 20% of the total price. Combined, that’s more than a third of your bill.
Can I find cheaper fuel elsewhere?
Yes. Use cheapest fuel near you to compare prices in your area.
Why is my local station more expensive?
Location, competition, and the type of retailer all play a role. Stations on motorways or far from terminals tend to be pricier.
Where does your data come from?
We collect prices from thousands of stations across the UK. You can see more about where our data comes from.
How do seasonal factors affect fuel prices?
Seasonal demand can push prices up. For example, prices often rise in the summer due to increased travel. Similarly, colder months may see higher prices because of higher demand for heating oil.
What’s the impact of government policy on fuel prices?
Fuel duty and VAT are set by the government. Changes to these rates directly affect the final price at the pump.