Drivers would be expected to pay around 6p less for a litre of petrol, reducing the cost of filling up by more than £3, according to the RAC.
After analysing figures on inflated margins, falling wholesale fuel prices and the strengthening of the pound against the dollar, the car group says retailers have scope to cut prices at the pump to “regain driver confidence”.
Failure to “drastically” reduce prices this week is said to mean the Competition and Markets Authority is due to step in after the watchdog found last year that the fuel sector had overcharged motorists to the tune of £1.6bn.
The regulator is currently consulting on imposing significant financial penalties on service station operators who fail to provide real-time updates on changes in petrol and diesel prices as part of a “Pumpwatch” scheme.
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The latest RAC Fuel Watch report shows retailers are pocketing average margins of 13p on unleaded and 15p on diesel.
Before the pandemic, traders over an extended period made profits with margins of just 8p on both fuels.
Last week, the wholesale delivered price (the amount retailers pay for fuel) of petrol fell to an average of 103 pence per litre.
If retailers were to play fair with drivers by passing on this wholesale saving and cut their margins to 10p, average petrol prices would be just under 136p per litre including VAT – 6p less than the current UK average of 142p.
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This would equate to a saving of £3.30 every time the owner of a family car with a 55-litre fuel tank fills up.
Diesel, which currently averages 147p, should be selling for 139p with a retail mark-up of 10p, given the wholesale price of 106p. This means drivers are losing an average saving of £4.40 when they fill up.
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In the UK it is more expensive to refuel than in the rest of Europe
Astonishingly, retailers’ high profit margins coupled with a refusal to cut prices give the UK the “questionable honour” of having the most expensive diesel in Europe for 16 of the past 17 weeks, even taking into account the 5p per litre discount on fuel duty that is due to be scrapped early next year.
The RAC says it is closely monitoring a number of independent retailers that are selling at significantly lower prices than their much larger supermarket rivals.
In Portlethen, Scotland, a newly opened petrol station under the name EG On The Move was selling petrol and diesel for 16p less than its nearest rival, Asda.
This prompted Asda to quickly cut its prices to match, rather than retailers, to play fair with drivers, cutting their prices at the forecourt beforehand.
The new site in Portlethen is one of several that have opened in recent months thanks to a deal between retailer Co-op and EG On The Move, the latter run by EG Group’s Zuber Issar, whose brother Mohsin now runs the Asda empire.
EG Group sold the vast majority of its service stations to Asda in a deal last year, but retained 31 sites which are now being converted into EG On The Move service stations.
At Essar’s famously cheap independent Grindley Brook petrol station in Whitchurch, Shropshire, a litre of unleaded will cost just 130.9p, and diesel 133.9p.
That’s only slightly lower than members-only retailer Costco, which charges an average of 130p for petrol across its 20 branches and 134.7p for diesel.
RAC policy chief Simon Williams said the refusal of major fuel retailers to cut prices was “costing drivers dearly”, adding that it was “even more outrageous when you factor in the temporary 5p cut in fuel duty”.
“While the Competition and Markets Authority has clearly stated that drivers overpaid last year, our data clearly shows that this problem persists this year,” Williams added.
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RAC data shows the average price of a litre of unleaded petrol sold by the big four supermarkets, which dominate fuel sales in the UK, is 138p and diesel 143p.
Interestingly, its petrol is the same price as the average price charged across Northern Ireland, but diesel there is still 3p cheaper than in UK supermarkets, at an average of 139.7p.
“It is clear to everyone, judging by the lower prices being charged across the UK, both across Northern Ireland and at other petrol stations, that fuel can and should be sold much more cheaply,” Williams added.
‘Our analysis shows that pump prices at most petrol stations should be reduced by around 6p for both petrol and diesel. With wholesale prices on the decline, drivers should not see such high prices at the pumps, especially as they are supposed to be benefiting from a 5p cut in fuel duty.
‘Our Fuel Watch data shows this is happening as it should in Northern Ireland but for some reason it doesn’t seem to be happening on this side of the Irish Sea.’
The Government plans to introduce a mandatory fuel price monitoring system, requiring retailers to share real-time information on their fuel prices with drivers. The CMA is currently consulting on fine amounts for operators who fail to comply with this requirement.
Fuel retailers could be fined if they don’t share live pricing information
The RAC says if fuel prices do not fall dramatically in the next week, it believes the Government and CMA should investigate. Major retailers demand an explanation.
“Strong action is needed to change this situation as drivers lose a lot every time they fill up. Artificially high prices at the pump also contribute to higher inflation, so if prices were closer to where they should be, inflation would be lower, benefiting borrowers and the wider economy,” added Simon Williams.
Measures to improve transparency in fuel prices are currently being drawn up, which could include financial penalties for retailers who refuse to share data.
The Government is consulting on the amounts of the fines, which could be a fixed fine of 10 per cent of global turnover, or a daily fine equivalent to 5 per cent of daily turnover, or both. The guidance document states.
Once the consultation is complete, the Labour government is expected to provide a timetable for plans to introduce a mandatory fuel monitoring system for all retailers to provide real-time information on fuel prices.
Currently, retailers can voluntarily provide daily information.
Talking with Esplanade merchant Earlier this month, the head of the Gasoline Retailers Association, which represents the country’s independent gas stations, highway service stations and supermarkets, said it was not yet clear whether the law would require smaller dealer groups and single-site operators to share pricing information.
Chief executive Gordon Balmer said the PRA has been “very involved” in discussions with the CMA to shape policy to deliver a fair outcome for both retailers and drivers.
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