Cost of Petrol

20 years ago the cost of a litre of petrol was around 35 pence per litre, so what is driving the cost of petrol ever increasingly upwards?
Well first of all looking at the cost of petrol 20 years ago is slightly unfair, as a great deal of the price increase is due to inflation over the last 20 years. Yes petrol costs have gone up 4 fold in 20 years, but earnings and overall living costs have also increased dramatically in that time. In fact, if you adjust the petrol costs for inflation we find that they have only gone up 25% in the last 20 years. However most of that price increase has occurred in the last couple of years which means the current price rises are real and are painful for the consumer.

What makes up the cost of petrol?

The cost of petrol is driven by a number of factors. Which include:

  • Cost of oil
  • Fuel Duty
  • VAT rate
  • Retailer overheads

Fuel Duty and VAT combined do make up the bulk of the cost of a litre of petrol, with fuel duty adding around 58p a litre (Jan 2012) and VAT adding another 18p a litre to the cost. On top of that the retailer needs to charge around 6p a litre in order to cover running costs and to make a profit. The remaining cost of petrol is dictated by the raw oil costs and the refinery costs. Typically this is around 40p-50p but it does depend a great deal on the current oil prices and the demands on the oil refineries.

True Cost of Running a Car

The good news is that total cost of running a car has actually decreased over the last 20 year. The cost of petrol has increased slightly but this is more than offset by the improvements made to a car's fuel efficiency. On top of that cars tend to be more reliable and require less servicing. So overall its now cheaper to own a car than it was in the 1980's. However if the cost of petrol continues to increase at the rate it has done for the last few years then we may find that the true cost of car ownership starts to increase again!