Executive Summary

Any nation's transportation system depends on road transport fuel to function. The size, product
type, taxing approach, and regulatory environment of the UK road transport market were covered
in the first section of the market analysis. The trends in gasoline prices and quantities over a 15-
year period are examined in the second section. The third section analyzes the various issues,
such as COVID-19, gasoline shortages, and the Russian-Ukrainian war, that have impacted the
supply and demand of fuel in the current market. The price elasticity demand for transportation
fuels in the UK is also included in this market study. Additionally, the market study includes a
synopsis of the primary factors influencing fuel prices in the nation.
Table of Contents

Introduction ……………………………………………………………………………………………………………3

Analysis of UK Road Transport Fuel Market …………………………………………………………….3

Analysis of Price and Quantity Trends. ……………………………………………………………………4

Analysis of Demand and Supply of UK Road Transport Fuel Market……………………….5

Analysis of Price Elasticity for Road Transport Fuels. …………………………………………….6

Implication of Price Elasticity on Pricing and Government Tax Strategy……………….7

Evidence based Analysis of Performance Issues on UK Road Transport Fuel………….8

Final Summary. …………………………………………………………………………………………………….10

References…………………………………………………………………………………………………………… 11
Introduction

The report will analyze the transport fuel market in the United Kingdom. The purpose of the
report, a quantifiable assessment of the UK road transport fuel market, is to provide consumers
with information about the factors influencing the cost structure of the market by analyzing
periodic quality data collected from various sources and presenting an understanding of the
market. This study will use economic principles and models as a foundation for its analysis as it
looks at important issues facing the sector as a whole. The industry will be discussed, and the
volume and price fluctuations of gasoline for road transportation will be examined over time.

In addition, the research investigates the causes of gasoline consumption and availability in the
United Kingdom, with a focus on the gas crisis that hit in 2021 due to the popularity of COVID-
19. The importance of demand-price elasticity for different road transportation fuels is covered in
part of the research, along with its effects on market values and regulatory tax policy. After that,
the study will concentrate on the UK market for transportation fuels, analyzing pertinent data and
making analogies to the adaptability of fuel for motor vehicles in view of prior economic
fluctuations. It will demonstrate the relationship between taxation and demand. The research will
first analyze the structure, behavior, and efficacy of the industry before assessing the distribution
network and the impact of various components primarily on the market. Final thoughts on how
the major discoveries—such as the long-term effects of the conflict between Russia and Ukraine,
COVID-19, and the 2021 gasoline shortage crisis—will affect fuel price policy in the future.

Analysis of UK Road Transport Fuel Market

Petrol and oil generated by the downstream oil sector account for 38% of the fuel used for road
transportation in the United Kingdom. Liquid fuels make up more than three-quarters of these
items utilized in UK vehicle transportation (ukpia.com, 2022). As per the government data of the
UK, unleaded petrol, unleaded diesel. In the UK, the most common fuel products used for road
transportation are LPG and a small amount of biofuels (gov.uk, 2021). COVID 19 had entered
the UK's road transport fuel market. But from 2021 to 2023, the market's size continued to rise.
In 2023, there are 1603 firms, compared to 1494 in 2020.

However, the number of the dealers have increased in 2023 which is 8365 in contrast with 5385
in 2020 (ukpra.co.uk, 2023). Road transportation accounts for 46 liters of gasoline usage in the
UK now, and it can move 1.9 billion tons of freight annually (ukpia.com, 2022). When
comparing the cost of fuel from 2004 to 2023, it is evident that costs have been rising over time.

Figure 1: Trend of price change in petrol (Source: Influenced by gov.uk, 2023)

The trend shown in the graph above indicates that the tax on gasoline has fluctuated between
rising and falling. The rate of taxation on gasoline was 79% in 2004 (gov.uk, 2021). Conversely,
the tax rate on gasoline is 63% in 2021. Over the course of the last 17 years, the price of gasoline
has also varied in line with the tax modification (gov.uk, 2021).

The two forms of taxes that are collected in the retail market for motor fuel are fuel excise and
value-added tax. Fuel duty for motor vehicles is now fixed at 57.95 pence per litre, plus 20% of
the final sale price is deducted for value-added tax. The leading companies in the UK's road
transport fuel market are Tesco, BP, Shell, Esso, Sainsbury's, Morrison's, Asda, Texaco, Certas
Energy, Jet, and a few other smaller names. Tesco has a 15% market share. The Department of
Business, Energy and Industrial Strategy (BEIS), the Oil and Natural Gas Agency (OGA) and the
Renewable Transport Fuel Obligation (RTFO) are the regulating organizations in this industry
(BEIS, 2021).

Analysis of Price and Quantity Trends

The cost of road lubricants varies in the UK in tandem with changes in the price of crude oil
globally. Consequently, this has a big effect on the gasoline market for cars.
Figure 2: Price of Petrol and Diesel (Source: Influenced by gov.uk 2023)

Figure 3: Price Chart of Petrol and Diesel in UK (Source: Influenced by uk.gov 2023)

The cost of fuel for the UK's highways has varied dramatically over time (from 2011 to 2023).
Prices have generally been rising, as seen by the above data, albeit they have declined sharply in
several years (2013, 2014, 2015, 2016 and 2020). Due to lower wholesale costs, fuel prices
decreased over those years. However, due to COVID-19's mobility constraints, the decline in
consumption in 2020 is associated with price reductions. According to additional study, the
average cost of fuel oil, diesel, and gasoline all reached record highs in 2021, at 71.5 pence and
145.2 pence per liter, respectively. When Russia began its full-scale invasion of Ukraine on
February 24, 2022, oil prices shot upward and stayed there until early March. As a result, in early
and mid-March, the price of road gasoline increased significantly and reached new highs. On
March 23, 2022, the duty rates on gasoline and diesel were reduced by five pence per litre. Both
fuel prices initially decreased as a result, but by less than five cents per litre. Prices quickly
began to rise again, with notable rises occurring in late May and early June. During this time, the
price of gasoline and diesel have both set and broken numerous records. At 191.6 and 199.2
pence per litre for gasoline and diesel, respectively, they peaked on July 4. Prices in the summer
of 2023 were the lowest since the fall of 2021. On the other hand, Diesel fuel is sometimes more
expensive than ordinary gas because of its larger demand and the inability of local refineries to
keep up with output (Higham, 2023). As a result, diesel had to be exported at a price higher than
that of gasoline. Furthermore, because of the decreased demand brought on by legal concerns
around its use, gas oil is frequently less expensive. It can only be used by farm tractors and
construction equipment.

In the United Kingdom, the quantity of automobiles has increased in the twenty-first century.
Fuel consumption has increased dramatically as a result of a greater reliance on vehicle products
and the road transportation network. In the UK, diesel use in various forms of road transportation
has surged recently (Wadud, 2016).

It is noted that in the middle of the 1990s, the government established incentives to encourage
the conversion of the road transportation system to diesel engines and environmental
preservation (Wadud, 2016). Diesel engine technology for automobiles and other road transport
vehicles saw a significant development during this time. It is also shown that, in contrast to
Wales, Scotland, and Northern Ireland, England now consumes substantially more fuel. It is also
clear that the process's increased quantity is the result of an over reliance on various autos and
road transportation networks.

Analysis of Factors Affecting Demand and Supply of Road Transport Fuels

Transport fuel availability and demand in the UK are influenced by a number of factors,
including vehicle types, driving patterns, family income, and gas costs. The Covid19 pandemic's
aftermath had a significant impact on the gasoline crisis of 2021. During the outbreak, movement
limitations decreased the demand for road gasoline, which in turn decreased output and slashed
costs. According to reports, there wasn't enough heavy goods truck drivers to move petroleum
during the closure (Britannica, 2021). Even while natural gas and petroleum have little to do with
the conflict in Ukraine, the surge in prices following the end of the shutdown has made the
already explosive situation there worse. As a result of Russia's fight in Ukraine, the only certain
prediction is more volatility and price changes.

Figure 4: Demand and Supply of UK Road Transport Fuel (Source: Self-Created)

Since supply and demand were satisfied at some point in 2013, the price equilibrium was
evident. The UK's road fuel transport sector has seen a notable growth in supply between 2005
and 2020, according to figures on the fuel's transportation (Department for Transport, 2021). It
suggests that household income in the United Kingdom has increased dramatically. The
procedure indicates that there is a noticeable increase in demand for the car product. The UK
road transport process and the consumption of various automotive products have both benefited
from the overall expansion in income levels. It is also shown that the supply has drastically
declined as a result of the UK's progressive taxation. It is also noted that the supply level has
dropped because to the recent escalation in the COVID-19 pandemic situation (Barua, 2020).
The supply level has also dropped as a result of the latest restrictions. The supply chain has been
impacted by the Brexit process's unpredictability.

Analysis of Price Elasticity for Road Transport Fuels

According to Lehner and Peer (2019), price elasticity refers to how a change in price affects a
product's demand, particularly its consumption. Since it reached saturation in 2013, the price in
this environment started to decline. After 2013, there was a significant increase in supply relative
to demand, which had an impact on fuel prices. Less demand for gasoline and diesel resulted in
lower fuel prices in the UK, indicating an inverse relationship between price and demand for
fuel. The price distribution from 2011 to 2023 is depicted in figure 1. The price elasticity with
demand in the UK for both diesel and petrol has maintained the fundamental theory of
economics (roughly) as the price of the fuel started declining after 2013. Prior to 2019, prices
were growing as a result of a decrease in fuel supply. gasoline prices began to rise in 2009 since
there was no variation in the gasoline supply during that time. The figure of registered
automobiles in the United Kingdom below illustrates the price elasticity of fuels. The decline in
disposable income over the 2008–2013 period was reflected in a continuing decline in the
number of vehicle registrations. But even with declining demand, a constant supply could not
impact the selling price. The cover charge of fuel duty prevented the price elasticity from being
maintained. Because of the high tax burden on fuel, the price elasticity of demand for the fuel
was therefore low and not as stable as supply.

Therefore, from 2009 to 2012, prices remained high despite a decrease in the number of
automobiles registered. In 2022, there were 1.61 million new passenger cars registered in the
United Kingdom. This represented a gradual yearly decline of about two percent.

Figure 5: Registered Vehicles in the UK (Source: Vehicle licensing statistics, 2023)

Implication of Price Elasticity on Pricing and Government Tax Strategy

According to Wadud (2016), elasticity of demand is a particular type of measurement that

examines shifts in a product's consumption pattern in connection to price changes.

Figure 6: Price curve of the road transport fuel in the UK (Source: Influenced by Uk.gov)

It is evident from the graph above that the cost of fuel for road transportation has been rising
since January 2013. However, following January 14, it began to decline sharply, and in 2021, the
average fuel price continued to decline. If the consumption pattern of petrol in the UK can be
examined then it can be noted that with the rising of the price the consumption has fallen till
2014 (gov.uk, 2023). The total amount of gasoline consumed was 18.5 gallons in 2005 and 11.9
gallons in 2014. The price of diesel has similarly trended with that of gasoline, however despite
its higher price, more people are using it because it is less expensive than gasoline (gov.uk,
2023).
The price elasticity also shows that the price of fuels for road transportation is influenced by the
supply of raw materials as well as consumption patterns. Products become more expensive due
to inadequate supply and lack of suitable alternatives (Dunkerley, Rohr, and Daly, 2014).
According to Hossinger et al. (2017), there is potential for the fuel price to grow by up to four
euros per liter. It is advised that the product's price be situational. Fuel prices can be balanced
with rising or falling demand using situational pricing. Given that changes in price result in
adjustments to both supply and demand, the UK's current pricing curve can be said to be very
elastic.

The excise duty on the two primary types of fuel used for road transportation—ultra-low sulfur
diesel and ultra-low sulfur gasoline—is 57.95p per liter. Including VAT, the tax is 62% of the
final price of fuel at pumps and 61% of the final pump price in the case of diesel
(commonslibrary.parliament.uk, 2022). In the 1990s despite troughs and peaks the oil price had
followed an upward pattern but at the end of it the taxing policy had become unpopular
(commonslibrary.parliament.uk, 2022). In the event that prices increased, the council had
suggested changing the tax rates. Fuel prices have somewhat increased in 2021 due to the
constraint of supply in the UK. In order to halt the rise in fuel prices, the UK government has
decided to lower fuel duty and VAT by 40% over the following two years
(petition.parliament.uk, 2022).

Evidenced Basis Analysis of performance issues on UK Road Transport Fuel

The cost of fuel is directly correlated with demand. It goes without saying that prices will rise if
gasoline demand rises and supply declines. By the end of 2017, the UK household's disposable
income had climbed by 2.3% (ons.gov.uk, 2018). Therefore, it may be concluded that UK
households are now more affordable. Therefore, it may be concluded that price increases won't
significantly lower demand.

The gasoline crisis has severely impacted the UK fuel market in 2021 as a result of multiple
worldwide crises. Transportable gasoline shortage in the UK is a result of the suspension of
competition law between the corporations, the launch of the HGV driver's license application
process, and the temporary closure of 23 petrol citations by British Petroleum (bbc.com, 2021).
Priorities were established on which entity would receive gasoline first and which later. 2021 has
seen a sharp rise in fuel prices due to the ongoing fuel crisis.
The COVID-19 pandemic and the Russia-Ukraine conflict have had a significant negative
influence on the supply of oil at the pumps. The fuel price had gone up a little because of panic
buying at the start of the pandemic. But the gasoline tank was full, the lockdown was
implemented, and the entire transportation network was shut down, which resulted in a
historically low demand for fuel in the UK (ons.gov.uk, 2018). For instance, according to
ons.gov.uk (2018), the price of petrol was 18.3% less in 2020 than it was in the same month the
previous year.

Final Summary

Fuel prices in the UK have been rising over the course of many years due to the impact from the
COVID-19 and Russia-Ukraine disruptions; they have just lately, particularly in 2022, reached
an all-time high. On the road, there appears to be an inelastic need for fuel. Although the possible
influence of Russia, Ukraine, and COVID-19 is predicted to cause fluctuations in demand and
availability, researchers have found certain components that may reduce the amount of gasoline
consumed in transportation.
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