Why is diesel cheaper than petrol for the first time in a decade?

Commercial vehicle drivers and diesel fleet operators have had a welcome summer of low prices at the forecourt. We investigate the factors behind the recent price cuts and ask whether they will continue into the future.

Fuel pump in a gas station.

Earlier this summer, the price for a litre of diesel fell significantly. So much so, that a litre of diesel is now, on average, cheaper than a litre of petrol for the first time in well over a decade.

Last month, the average price of diesel fell to its lowest level in more than five-and-a-half-years.

In July the AA said fuel retailers had been “plundering ordinary diesel car drivers to the tune of 4p to 6p a litre” since April. This had an immediate effect on supermarket retailers. Mere days later most of the major suppliers had cut their forecourt diesel price by as much as two-pence-per-litre.

This price-cut was welcomed by haulage unions and transport industry bodies, but many were miffed by what they perceived as months of rip-off prices for domestic and non-domestic diesel drivers.

Wholesale petrol and diesel prices were tumbling as early as May and April this year. But retailers failed to drop their prices until the start of summer.

As is so often the case with fuel retailers, their prices seem to drop like a feather but shoot up like a rocket.

Director of the RAC Foundation Steve Gooding said back in July: “This is good news for diesel drivers, but our analysis shows it could have come weeks ago. The wholesale price of diesel fell below that of petrol back in the middle of May.

“The real test is whether in the future the prices motorists pay at the pump more accurately reflect what retailers pay at the refinery gate.”

Why has the wholesale diesel price dropped this summer

The market price for wholesale diesel is directly related to international supply and demand. As they try to see off market competition from alternative fuel sources (like shale gas harvested in the United States), predatory OPEC countries like Saudi Arabia have ramped up oil production and flooded the market.

At the same time, global demand has dipped in important national markets like China, where a slowdown in growth is affecting the nations thirst for fuel.

With all of the extra supply, and limited global demand, the wholesale price for petrol and diesel has dropped significantly in 2015.

It is important to note, though, that wholesale prices only account for a fraction of the price you pay at the pumps. In the UK, more than 60% of the pump price is made up of Fuel Duty and VAT.

It is also worth remembering that it is the average price for diesel which has fallen.  In certain areas of the country, and even at certain filling stations the prices for diesel and petrol can vary significantly.

A statement from Morrisons earlier this year indicated that a “handful” of their filling stations would continue selling diesel at a higher price than unleaded because of “local competitive factors”.

Long-distance drivers with lots of experience should be aware of price differentials across the country and make fuel stops accordingly. Drivers which cross national boundaries usually prefer to fill up in different countries where fuel is significantly cheaper.

Will diesel prices stay low?

In the immediate future, the price for diesel will remain low and might even drop further. After the initial price cuts in July, more prices fell in August helping to shave a few more pounds off of a tank of diesel.

As the supermarket fuel retailers appear to be entering into a price war, analysts predict that the forecourt price could fall even further.

Simon Williams, fuel expert at the RAC said last month:  “With oil prices just under the $50 a barrel mark, there’s every chance even more cuts are just around the corner. And, if oil stays low and wholesale diesel remains abundant, we could even have a chance of seeing £1 a litre diesel.”

Why do trucks use diesel?

Diesel engines get more miles per gallon than their petrol-powered cousins, they also get more torque and because they are built heavier they also tend to last a lot longer, which is useful for commercial vehicles which might be in use for a decade.

Although diesel powered engines tend to be heavier and more expensive, this isn’t usually a problem for larger commercial vehicles like trucks. Some drivers claim that diesel smells nicer after a long trip, however, evidence from the World Health Organisation links diesel fumes to development of certain cancers.

Lead researcher Dr Christopher Portier said in 2012 that “Given the additional health impacts from diesel particulates, exposure to this mixture of chemicals should be reduced worldwide.”