Back in the 1980s, the high-level decision was taken to encourage motorists to switch from petrol driven cars and vans to those powered by diesel. The thinking behind it was that, with advanced technology in catalytic converters, diesel engines would be cleaner and more cost efficient than petrol driven engines. The converters would take out the NOx and SOx and, with greater fuel efficiency and longevity, it would make sense to move from one fuel to the other.
At the same time, the refining industry geared itself up to increased volume of diesel as fleet operators realised there was considerable economic sense to make the change.
Today, that original decision is frowned upon and the view is that the converters are not able to capture the particulates emitted by diesel and, in spite of the technical advantages of running a diesel engine, better mpg, longer intervals between services and extended running life, we are now being guided back to petrol driven engines.
Technology is moving ahead with smoother running petrol engines having an increased mpg. Furthermore, with advent of hybrid vehicles, which can turn off and on in a split second, plus those that can also run on battery power, the industry is making great advances in terms of being cleaner and more fuel efficient and, subsequently, cost-effective. Much of this change has also resulted by the impact of the dramatic upward movement in oil prices in recent years.
Currently, the duty on each is 57.95ppl plus of course VAT at 20% and this has been constant for some time. However, what is interesting is that when diesel was first promoted, its price was cheaper than leaded petrol but, once unleaded came to the market, it was cheaper than diesel, as shown in the chart below. Nevertheless the so-called benefits of diesel promoted its use over petrol.
We do not run our vehicles on crude oil and so it is misguided to directly equate the crude price to the cost of fuel. Admittedly, the price of crude has an influence on individual product prices but ultimately each product has its own component make up, influenced by supply and demand.
Much of the diesel consumed in Europe comes from Russia while much of the petrol produced has traditionally been exported to the US. Now with increased refinery activity in the US, exports of diesel are also flowing to Europe and contributing to the glut.
In the US, the annual driving season is coming to an end and with that demand for motor fuel in private cars will drop. In recent months, lower prices have resulted in Americans driving more, visiting major stores and shopping malls, creating increased prosperity throughout the somewhat dormant retail sector. Looking ahead, US demand will continue to fall as more fuel efficient vehicles take over the market, fuelled by increased prosperity from lower oil and fuel prices.
In France, diesel accounts for over 80% of automotive fuels but, with the recognition that it is no longer environmentally friendly, consumers will be encouraged to switch back to petrol.
Meanwhile, refiners across Europe struggle to produce the right balance between petrol and diesel and as the demand for petrol rises, so too does the glut of diesel and drivers switch to petrol. So, to alleviate the glut, prices have to fall.
It will take time for the imbalance to clear and so, for now, unless the duty level between the two changes, UK drivers can enjoy cheaper diesel prices plus the added benefits, although technically, the environment will suffer.
Written By- John Hall
