Why Have Fuel Prices Risen in 2022?
Originally uploaded on March 15, 2022
Over the past few years, fleet managers have faced a growing number of widespread, national challenges that have affected the operation of fleets in a variety of ways. The most alarming in the first quarter of 2022 has been the exponential rise in the price of fuel. In March 2022, that national average prices for petrol and diesel in the UK have shot to levels not seen since 2008. These prices currently stand at 163.71ppl and 173.68ppl respectively.
There are many causes that have attributed to the sharp rise in petrol and diesel prices. These factors affect the wholesale price of oil barrels which, in early 2021, sat at about US$60 a barrel. This increase in the wholesale price of oil drives up the product cost of fuel for both retailers and consumers.
The wholesale value per barrel of oil reached a high of over US$136 with further increases looking likely. But what has caused the wholesale price to double over the past 12 months? Why have petrol and diesel prices increased dramatically? When will the fuel prices stop rising? And what can fleet managers do to protect their fleets?
Why Have Fuel Prices Risen in the UK?
1. COVID-19
In late 2021, the world tentatively emerged from the lockdowns brought on by the COVID-19 pandemic. Businesses that had been forced to pause or reduce operations began resuming activity, increasing global oil consumption which, in turn, drove up the price of fuel.
Across Europe, and in particular the UK on the back of its exit from the European Union, the number of available HGV drivers declined massively. In addition, HGV driver tests halted during lockdown, placing additional pressure on companies as they attempted to fill the void by improving pay packages in an attempt to attract and retain drivers.
This ‘perfect storm’ was also felt across the fuel distribution sector with major oil companies struggling to fulfil demand in some areas of the UK. Whilst initially there was no significant disruption, the news coverage from the mainstream media lead to widespread panic buying across the UK which caused retail fuel prices to spike.
This caused nationwide frustration as fleets everywhere struggled to get adequate supplies.
The effect of this crisis began to wane as we moved into 2022, but this reprieve didn’t last long as Russia increased its aggression against Ukraine.
2. Russia and Ukraine Conflict
The current conflict between Russia, who is the world's third-largest oil exporter, and Ukraine has seen the price of oil and natural gasses soar. Last year, an even greater emphasis was placed on Russia’s output because Libya, another prominent oil supplier, struggled to keep up with the increased global demand and dramatically decreased their already falling crude oil export.
On 5th February 2022, American officials announced that Russia had stationed thousands of troops near the Ukrainian border. This left many, if not most, tense to see what Russia’s next action will be.
Russia exports roughly 10% of the world’s oil and, in February, although many speculated that a war between Russia and the Ukraine would be detrimental to Russia itself, the uncertainty caused by the hostile placement of soldiers on the Ukrainian border caused oil prices to escalate again.
On 24th February 2022, Vladimir Putin ordered a full-scale invasion of the Ukraine, an act which has spurred worldwide condemnation. Countless protests are being held and many countries have imposed sanctions on Russia for its actions. These sanctions aim to damage Russia’s economy and prevent their ability to fund a war with Ukraine.
This constantly escalating situation has caused fuel prices to leap to their highest level since July 2008, and, with no end looking likely soon, prices will continue to increase. Mr Spencer, director of Portland Fuels, estimated that fuel prices will rise to over £1.70 - £1.75 per litre. For fleet managers, this will cause further anxiety over what was an already fraught fuel market.
When Will Fuel Prices Go Down?
Unfortunately, with uncertainty being one of the main driving factors for oil prices rising so much, it’s also unclear when they may begin to fall again. It was previously optimistically estimated that the prices would begin to fall after the first quarter of 2022, as the initial effect of the easing of COVID-19 restrictions passed. However, the agitations over Russia’s invasion of Ukraine look to have diminished this possibility.
Countries in the West are now imposing increased sanctions against Russia, moving away from purchasing Russian oil, using Russian vessels, or giving supplies to Russia. This will decrease the amount of oil available and, as the supply is affected, raise the value of oil even further.
The medium-term outlook for the future is that fuel prices will continue to rise and then remain high. It’s best for fleet managers to think pragmatically and be as deliberate as they can when planning and managing their fleet outgoings.
What Can Fleet Managers Do?
Some sources, such as the RAC, are encouraging drivers to look into electric vehicles (EVs) if they are planning to purchase a new vehicle soon. However, this isn’t exactly a sustainable suggestion for fleet managers. The upfront costs of changing even part of a fleet to EVs far outweigh the potential benefits of switching to electric powered vehicles during a fuel cost crisis, especially with the cost of electricity also rising. But this doesn’t mean there isn’t any way to save your fleet money.
Another suggestion is to monitor the driving habits of your fleet. Drivers can waste fuel with bad driving habits, such as overrevving, driving at an unnecessarily high speed, and changing gears too late. An effective way of keeping track of this is with telematics, which allows you to analyse the data from your fleet. Not only will this boost the efficiency of your fleet, but it will lead to higher standards of fleet safety and control. With this information, you can reward the accomplishments of the most efficient and safest drivers in your fleet as an incentive for the whole team.
Planning your fleet’s journeys in advance will allow you to reduce detours and make sure your team are refuelling at the most cost-efficient stations. With your Fuelmate account and online portal, you will be given access to our journey planner which will allow you to work out routes in advance, including refuelling points. You can also use our Garage Locator for a sneak preview at the garages around a specific postcode.
We hope this post has helped you to better understand why fuel prices have risen so dramatically. Overall, using fuel cards will likely lead to the largest direct saving in terms of fuel costs, so they’re worth considering if you want to minimise the impact of soaring petrol and diesel prices. Our team can use our analytics software to review your invoices free of charge and see where you could be saving money on your current fuel card deal. To discuss your fuel card options and see what prices our different cards can offer you, talk to our team now.