From Oil Well to Your Tank — How Fuel Prices Are Set

When you pull into a forecourt and see 156p per litre on the sign, that number is the result of a remarkably complex chain of events stretching from oil fields in the Middle East to a refinery in the UK to a tanker on the motorway. Understanding how that price is built up explains why pump prices can jump sharply in days and fall slowly over weeks — and why the retailer is often the least powerful party in the whole system. You can track how prices have moved recently on our live UK fuel price chart.

Step 1 — Crude oil on global markets

Everything starts with crude oil, traded on international commodity markets in US dollars per barrel. The most widely referenced benchmark is Brent crude, extracted from the North Sea. When global events disrupt supply — as the conflict in the Middle East has done since February 2026, pushing Brent above $110 per barrel — the price of everything downstream rises with it.

The UK imports most of its crude oil, which means the sterling/dollar exchange rate matters too. A weaker pound makes oil more expensive to import even if the dollar price has not changed. Both factors contributed to the current price spike.

Step 2 — Refining

Crude oil is not usable as fuel in its raw state. It is transported to refineries where it is heated and separated into different products — petrol, diesel, aviation fuel, heating oil and others. The UK has several major refineries, including Essar Stanlow in Cheshire and Valero Pembroke in Wales. Refinery margins — the profit made on converting crude into usable fuel — add to the cost at this stage.

Step 3 — Wholesale fuel market

Refined fuel is traded on wholesale markets before it reaches the forecourt. The wholesale price of petrol and diesel in the UK is closely tracked by the RAC and others as a leading indicator of where pump prices are heading. When wholesale prices rise, pump prices typically follow within days. When wholesale prices fall, pump prices follow more slowly — the rocket and feather effect we covered in a previous article.

Step 4 — Distribution

Fuel is transported from refineries to regional distribution depots, then loaded onto tankers for delivery to individual forecourts. The same tanker often delivers to multiple brands — a Shell station in the morning and a Tesco station in the afternoon may receive fuel from the same vehicle and the same batch. Distribution costs vary by region, which is why rural fuel prices are often higher than urban ones.

Step 5 — Taxation

Before the fuel reaches the pump it is subject to fuel duty — currently 52.95p per litre — paid by the importer or refiner but ultimately passed on to the consumer. VAT at 20% is then added to the total including the duty. Together, tax accounts for more than half of the pump price at current levels. We covered this in detail in our fuel duty explainer.

Step 6 — The retailer

Finally, the forecourt operator adds their margin — typically 8-12p per litre for most branded stations, less for supermarkets which operate on 5-7p per litre margins and use fuel as a loss leader. This is the only stage in the chain where competition between retailers has a direct and immediate effect on what you pay.

    The price chain on a 156p litre of petrol:

    Crude oil cost: ~35p · Refining and distribution: ~20p · Wholesale margin: ~12p · Fuel duty: 52.95p · VAT: ~26p · Retailer margin: ~10p

Why prices rise fast and fall slowly

With this chain in mind, the rocket and feather effect makes more sense. When crude oil prices spike, every stage of the chain faces higher costs almost immediately — and retailers are quick to pass them on. When crude prices fall, retailers who have already bought fuel at higher prices argue they cannot cut pump prices until they have sold through their existing stock. The wholesale stage adjusts, then the distribution stage, and finally the forecourt — by which point weeks may have passed.

What this means for you

You cannot control crude oil prices, refinery margins, fuel duty or wholesale markets. The only variable in your control is which retailer you choose — and that single decision can save you 10-15p per litre at current prices. Use Save at the Pump to find the station with the lowest margin near you, updated every hour from the UK Government's official data feed.