Why is diesel more expensive than petrol? Difference between fuel costs explained and if prices will fall

Breaking down why there is a price difference between petrol and diesel and why war in Ukraine and supply issues are making it worse

Motoring groups have warned that fuel prices could be set to rise again after remaining almost static throughout April.

After racing to record highs in March, the cost of petrol and diesel fell back slightly in April but remains significantly higher than at this time last year.

Petrol is more than £1.62 per litre - 32p more than in May 2021 - while diesel is £1.77 a litre - 47p more than the average last May.

Not only is diesel more expensive than petrol, but figures from the RAC show the gap has widened over the past 12 months, from just 2p per litre in May 2021 to 15p now.

Why is diesel more expensive than petrol?

The cost of diesel can be broken down into the same basic elements as petrol - production cost and taxation.

Both petrol and diesel are subject to the same 52.95p per litre fuel duty and VAT is applied at 20% on both as well, so the extra cost comes down to the production and supply costs.

Fuel prices across the UK continue to rocket, putting ever-growing pressure on the wallets of hard-press drivers (AFP via Getty Images)

Historically, UK refineries have struggled to meet demand for diesel and the country has had to import the fuel from abroad, with up to half its supplies coming from overseas. That increases its production and transportation costs relative to petrol, which retailers then pass on to customers.

Diesel is also used as a heating fuel in some countries, meaning there is greater competition for supplies, leading to higher wholesale prices.

According to the RAC’s Fuel Watch service, the wholesale price of diesel is currently around 71p per litre, compared to 62p per litre for petrol. On top of that, delivery and oil company costs are around 0.4p per litre more for diesel and biofuel additives cost 6p per litre more for diesel than petrol.

The situation is also being made worse by to the war in Ukraine. The UK imports around half its diesel needs, with between 15 and 20% coming from Russia. With the UK and EU planning a phased ban on Russian oil and road fuels, that could lessen supplies which would inevitably lead to even higher prices.

According to Autocar, the Netherlands is the UK’s second largest supplier of diesel but it also buys a large proportion of its crude oil from Russia.

With several other countries considering cutting ties with Russian suppliers, demand on supplies from elsewhere would increase with predictable effects on costs.

There have also been suggestions in the past that retailers are happy to charge more for diesel in order to keep the price of petrol down. The belief is that private car owners, most of whom drive petrol cars are more likely to shop around for the best deal than business users who top up with diesel.

When will prices stop rising?

The current global situation means there is no immediate end in sight to price rises.

While the war in Ukraine is affecting the markets, prices were already rising sharply as economies worldwide returned to pre-pandemic levels and oil producers were struggling to meet the rising demand.

The RAC warned this week that after a brief respite in April as oil prices hovered around $100 a barrel, shifts in supply and exchange rates could mean more rises at the pumps

Its fuel spokesman Simon Williams warned: : “Although the price of oil has cooled considerably, there’s still plenty of uncertainty in the market which is leading to prices jumping around a lot. This coupled with the exchange rate worsening isn’t good for drivers and news that the EU is planning to phase out Russian oil is likely to cause the barrel price to rise.