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Petrol prices highest since WW1

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 27 May 2010  |  Comments 9 comments

By my calculations, petrol prices have not been higher since the late 1910s. What's next?

Petrol prices highest since WW1

According to the AA, petrol prices are unlikely ever to go below 110p a litre again, even though fuel costs are on their way down again.

The reason for this is a combination of increasing fuel duty and measures by Opec (an alliance of oil-producing nations) to control the price of oil, usually by restricting its supply. The AA argues, in fact, that we will never see prices fall below the £1 mark.

What's causing high prices?

From the 1930s to the 1990s real UK petrol prices (that is, excluding inflation) have spent most of their time in a fairly narrow price range. Today, at an average price of more than 120p/litre of unleaded petrol (as reported in Petrol price hikes trigger supermarket price war) they're about 40% higher than the long-term trend.

There have been just two times in the past 108 years when prices have risen so dramatically. In the mid to late 50s, shortly after a post-war period of petrol rationing ended, they were as high as today. During WW1, they were the equivalent of about £1.90/litre in today's money. At more than 50% higher than today, that is also a peak of double the average price from the 30s through the 90s.

Since the end of the 90s, crude oil has doubled in price (according to the Guardian, which took data from both the AA and Platts) making this the main cause for automobile fuel increases for the past decade.

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However, ten years ago, a government report found that, between 1990 and 1999, the price of North Sea oil fell 30%, yet fuel prices rose about 30%, and this was partly attributed to taxation. Today, 75 pence of the 120 pence or so that we pay for unleaded petrol is tax.

Hence, it's a combination of both that has caused our rapidly growing prices over many years.

This year we've had both problems, which explains the recent big jump. On 1 January, VAT went back up to 17.5%, which added a couple of pence to the cost of petrol and diesel. An increase to fuel duty and a scrapped subsidy has added about 2p extra from the beginning of April (with more due to come later in the year). Plus, the AA reported that wholesale prices went up 17% this year till the middle of April, which will have put another 5p or so on top.

A few weeks ago wholesale prices had their first pause of the year when they dipped two pence, and this is just now being reflected in the recent supermarket petrol-price war.

All that pretty accurately follows the jump in the cost of car fuel so far this year. The AA says we now have the second highest diesel prices in Europe, but if you want some surprisingly good news, we have just the ninth most expensive petrol prices.

What's next? you ask

If by next you mean the next decade, then it's likely that prices will somehow begin to return to their long-term trend, which means they'll start to fall perhaps as much as 40%. Commodity prices, just like asset prices (e.g. shares and house prices) have always returned to trend previously, even though each time people say 'this time it's different'.

Recent question on this topic

The good news is that for most of the 20th century the commodity-price trend was generally flat or even downwards, even when some pretty large countries (e.g. Germany) were rapidly industrialising.

Thing is, it could take a long time for, say, innovation, investment or a change in petrol-tax policy to bring prices right back down, so when you ask 'What's next?' you probably meaning the next two to 12 months. That's not something anyone can answer, unfortunately, unless you're close enough to Chinese Premier Wen Jiabao to ask him what China's investment plans are for the year. However, if you want to fix the cost of your petrol prices just in case, take a look at this lovemoney.com article: Fix the cost of your petrol! Alternatively, for some tips to cut your petrol costs, read Petrol price hikes trigger supermarket price war or cut your other fuel bills by as much as 25%.

More: Free online banking tool | Fix the cost of your petrol! | Petrol price hikes trigger supermarket price war

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Comments (9)

  • Mixed media
    Love rating 1
    Mixed media said

    Just had a friend in USA tell me petrol over there is only $2.78 per gall [ yes per gall.] & they are complaining.!

    She finds our prices unbelievable & thinks would be riots in the States at those prices. We just grin & bear it!!!!!

    Report on 31 May 2010  |  Love thisLove  1 love
  • MCAS32
    Love rating 9
    MCAS32 said

    I live in Thatcham, Berrkshire and our local Texaco/Co-operative store is selling unleaded petrol at £1.24.9. I put in £5.00. I was intending to go onto te M4 to Heathrow. I left at Junction 11 and about half a mile from this junction is a shell garage selling unleaded petrol for £1.14.9....10p a litre cheaper. This petrol station is only around 15 miles from Thatcham.

    We motorists are being well and truly ripped off. 10p a litre. A Ford Focus for example has a 53 litre fuel tank. So the diffrence in cost is over £5.00 a tankful. Even filling up just once a week over a year would represent a cost difference of over £260!

    Report on 31 May 2010  |  Love thisLove  0 loves
  • Mike10613
    Love rating 599
    Mike10613 said

    I saved around £6 on a tank full at Easter when Morrisons dropped the price; the queue went down too. I should ahve filled up again this Bank holiday but forgot. I still have 40L left though. I don't commute or pay congestion charges! I expect it to get more expensive. The Liberal Democrats promised to get rid of the stupid tax disk and put it on petrol; not that I expect politicians to keep promises but you never know. I look forward to the bureaucrats at the DVLA who administer it meeting the bureaucrats at Jobcentreplus! That would make a kickass headline! 

    Report on 31 May 2010  |  Love thisLove  0 loves
  • Alan Preston
    Love rating 0
    Alan Preston said

    When we were in Florida last year, Mixed Media, we bought loads of designer gear at a third of the price here, so it's not just petrol!  Incidentally I just bought a Toyota Prius and halved my petrol costs, and NO ROAD TAX Yippee. The sense of satisfaction is immense!

    Report on 31 May 2010  |  Love thisLove  0 loves
  • charles125
    Love rating 53
    charles125 said

    UNLESS you absolutely HAVE TO use petrol or diesel, the ONLY ANSWER is to stop using ANY fuel until the price goes down. If EVERYONE did this each time the price rises the oil companies and supermarkets would soon lower prices!

    just watch out for two pence up, once pence down = PRICE RISE!

    Report on 31 May 2010  |  Love thisLove  0 loves
  • richardkeys
    Love rating 1
    richardkeys said

    No, these prices are not the highest they have been - at least not for those with memories. Two years ago in July, diesel was 134 pence per litre around London, and unleaded was a bit cheaper. 

    Report on 31 May 2010  |  Love thisLove  0 loves
  • Neil Faulkner
    Love rating 32
    Neil Faulkner said

    Hi richardkeys

    I'm aware that prices a few years ago were about the same as today nationwide (and that London back then, as today, was higher than the average). I also consider the daily spot price to be less important than the prices over a few years, which is why in the article I was talking about longer time periods. I was comparing during WW1 (a nearly four-year period) with the late 1950s (several years) to around now.

    However and in any case, the nationwide figures I was using show that in real terms prices today are very slightly higher than a couple of years ago. Not that I think it's all that important. In my view, the fact that petrol prices are very high today in comparison to the past is an important point; whether they were a few pence more or less than two years ago is not.

    Thanks

    Neil

    Report on 01 June 2010  |  Love thisLove  0 loves
  • The Bank Manager
    Love rating 72
    The Bank Manager said

    I'm fortunate that I have a big Sainburys nearby and there's always a price war between it, another close-by hypermarket and a major fuel station, so they keep each other on their toes.

    At present, it's about 115.9ppl and when I fill up my 55 litre tank, that equates to £63.74, but better still, my employer offers me discounted Sainsburys £10 vouchers (believe I've noted that before, in past comments).

    My actual bill is £61.34 - a saving of £2.40. Better in my pocket than theirs....

    By the way Mixed media, the American gallon is smaller than the Imperial gallon, so in essence (pardon the pun!) the Yanks would be paying even more, than by simply converting at the $/£ exchange rate.

    Looks like there would be another civil war in the U S of A????

    Report on 01 June 2010  |  Love thisLove  0 loves
  • divad
    Love rating 5
    divad said

    The CO2 tax ishould be a fuel tax and the scale is only partly related to the efficiency of the engine. In other countries with a more transparent approach to taxation this is included in the fuel price.

    In France they rolled the road tax into the fuel price which is why it now appears to be almost as much as in U.K..

    At, for example, £400 annual road tax and 8000 miles/yr this is 5p./mile.

    At 30m.p.g. this is £1.50 tax/ gal., bringing the cost per litre to about £1.55.

    If you only cover 2000 miles it becomes £2.60/litre!

    This is a truer picture of fuel cost.

    The fewer miles you cover, the more expensive per mile and the greener you are. Strange!

    Report on 01 June 2010  |  Love thisLove  0 loves

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