How will a no-deal Brexit affect fuel prices?

How will a no-deal Brexit affect fuel prices?
How will a no-deal Brexit affect fuel prices?

A no-deal Brexit has many potential effects on motorists.

From having to acquire multiple international driving permits, to the need for extra insurance documentation and even having to change number plates, there are a series of changes drivers need to be prepared for.

While the impact on documentation is still up in the air, the effect of a no-deal arrangement on fuel prices is even less certain.

Even industry observers say that the only thing they can be sure of is that there are a lot of unknowns and uncertainties.

Imports

According to government data, the UK was a net importer of petroleum products in 2017. While the country produces enough petrol to be self-sufficient, it doesn’t produce enough diesel to meet demand.

As a result, it imported almost 5.95 million metric tonnes of petroleum products from the Netherlands in 2017 and 5.65m tonnes from Russia.

The latest Government statement suggests that in the event of no-deal Brexit fuel imports will not be subject to tariffs.  

If that is the case, prices are likely to be unaffected.

However, there are also other factors which affect fuel prices and could see them rise or fall.

While the country produces enough petrol to be self-sufficient, it doesn’t produce enough diesel to meet demand (Photo: Getty)

Wholesale prices

At the moment, UK forecourt prices are largely dictated by global wholesale markets. Last year’s rollercoaster prices were a result of the major oil producing countries – including the OPEC nations and Russia – adjusting controls on the supply of oil.

A no-deal Brexit will not have any direct effect on global production but could still affect how much Britons pay for their fuel through its effect on the value of the pound.

RAC fuel spokesman Simon Williams explains: “Generally speaking, UK forecourt prices track wholesale fuel prices – with the difference being tax, delivery and the margin the retailer takes.

“Aside from the oil price, the biggest factor affecting fuel prices is the sterling-to-dollar exchange rate, as wholesale fuel is traded in dollars.

“Therefore, the relative strength of the pound can affect wholesale prices and in turn the price drivers pay at the pumps.

“In a situation when the price of oil is relatively stable, a significant strengthening of sterling can have the effect of reducing forecourt prices, but the converse is also true – weaker sterling can lead to higher fuel prices.

“It will therefore be important to monitor what happens to the sterling/dollar exchange rate after 29 March.”

Volatile

Kitty Bate, consumer spokesperson for PetrolPrices.com, adds that the uncertainty around Brexit itself could be enough to affect the wholesale markets

“Brexit seems fast approaching, and perhaps one of the biggest factors that could affect us is the uncertainty surrounding it.

“Oil prices rose drastically with uncertainty surrounding Trump’s sanctions on Iran, so it is likely that prices could be driven up if a no-deal goes through or if there is an extension on the deal as the oil markets try and predict what will happen next.

“Companies could potentially increase prices in order to create a buffer for their profits as part of any no-deal plans, again this is all unknown. As with most reporting on Brexit, everything is very much up in the air.”

Regardless of which way fuel prices go in the event of a no-deal, retailers are unlikely to change their “rocket and feather” pricing approach. This sees any increased cost to suppliers immediately passed on to consumers while any reduction in costs take far longer to filter back down.

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