Cost of Fuel

The cost of both petrol and diesel is slowly creeping up and up!  As consumers this is hard to grasp, as on one hand we are told that the price of oil is coming down but we see no change in the price at the pump, why?  We all know that taxes are levied on fuels but just what percentage of this tax makes up the final cost?  What about rising inflation, how much is this hurting us?  All these questions are asked by consumers everyday but are things really that bad?  Let's take a look at some of these questions and try to work out if the cost of fuel today is disproportionate to that a few years back.


What makes up the cost of petrol and diesel?

Seeing what makes up the cost of the fuels we use at the pump is quite transparent.  When you actually look at it you can see very clearly who benefits the most from the cost of fuel: the government.

Make up cost of petrol and diesel


Let's have a look in simple terms at what makes up the cost of petrol and diesel.


This simple bar chart shows that government taxes make up a huge amount of the cost at the pump.  This amounts in vast amounts of income for the government from a source that will not diminish in it's consumption.  The retailer makes a tiny margin on the cost of fuel but given the vast volumes that get sold everyday, this margin still equates to a healthy income.  I am sure that retailers would love to see the taxes come down as it would help their margins, whether this cost would be reflected in the pockets of the consumer is another matter?


The cost of fuel since 2001

We all know that the cost of fuel has increased over the years, the chart below shows just how much it has increased. You can also see how the cost of inflation has influenced the cost of fuel since 2000.



It's clear to see that inflation is having an impact on fuel costs.  This inflation chart shows that we are having to spend about 1.3 times more on fuel than this time last year to get the same amount of fuel.  This is hurting both business and private consumers as salaries on average have not increased by the same amount.  Businesses such as hauliers are having to meet this extra cost in fuel to deliver goods and services and in order for them to do this the cost is passed on to the consumeCost of Fuelr, this increasing the price of everyday items.

There are a number of things which influence the cost of the fuel as well as inflation and taxes.  The costs to the oil companies extracting the raw material out of the ground has also increased.  Natural reserves of oil have become harder to find so new methods for extracting have been created.  Getting oil out of the sand in the middle east is easier than getting it out of the ground in Alaska so the cost has to be covered somewhere.  The consumer ultimately pays the price for the scarcity in oil.

The True Cost of Fuel

Although the cost of fuel has gone up over the last 10 years it is worth remembering that fuel efficiency has increased meaning less visits to the pump.  This has helped the consumer to achieve more miles from a tank but the synics amongst us might say that this is why fuel costs have had to go up?  After all the less we visit the pumps the less revenue the government will make.  The price increase in fuel may soon make us all think a little more seriously about alternatives to petrol or diesel vehicals such as electric.  Although they are more expensive to purchase the cost to run them is much lower, as low vehicle tax and no duty on the fuel it could be an attractive option, at least until taxes are introduced!