ECONOMIC MARKET ANALYSIS OF UK ROAD TRANSPORT FUEL

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Executive Summary

Road transport fuel keeps the transport system alive in any country. In the first part of the market
analysis, the size, type of products, taxation strategy, regulatory environment of the UK road
transport market has been discussed. In the second part the trends of the quantity and price of
fuels over time of 15 years have been analysed. In the third part different factors like COVID 19,
fuel shortage which have affected the supply and demand of fuel in present times have been
analysed. This market analysis also consists of price elasticity demand of transport fuels in the
UK. Moreover, a summary of the main issues that affect fuel pricing in the country are also
included in the market analysis.

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 TABLE OF CONTENTS

Executive Summary

Table of Contents

List of Figures

List of Tables

Market Definition

Analysis of Price and Quantity Trends

Analysis of factors that affects demand and supply of UK Road Transport Fuel

Analysis of Price Elasticity for Road Transport Fuels

An Evidenced Based Analysis of the Structure, Conduct and Performance Issues in The
Production or Retailing of Road Transport Fuels

Summary

MARKET DEFINITION

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The UK road transport fuel market is a dynamic market that has seen products keep getting better
in terms of being better for the environment by putting out less pollution. This has led to growth,
some of which is often mixed with fuel for the roads. Bio-fuel makes up 4.9% of the fuel used on
UK roads. According to the United Kingdom Petroleum industry association (2021), there are
about 46 billion litres of road transport fuel on the market right now.

Market Share of fi rms

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%
Tesco BP Shell Esso Sainsbury Morrisons Asda Texaco Certas Jet
Energy

The downstream oil sector makes petroleum products and oil, which are used to fuel 38% of all
road transportation fuel in the UK. More than three-quarters of these products are liquid fuels
that are used in UK road transportation (ukpia.com, 2022). According to data from the UK
government, unleaded gasoline and diesel. In the UK, LPG and a very small amount of biofuels
are the main types of fuel used for road vehicles (gov.uk, 2021). COVID 19 was on the market
for road transportation fuel in the UK. But in 2021, the size of the market has still grown. In
2020, there were 1494 businesses, but in 2021, there will be 1501. But there are fewer dealers in
2021 than there were in 2020. In 2021, there are 5372 dealers instead of 5385. (ukpra.co.uk,
2020). At the moment, road transport uses 46 percent of all fuel in the UK and can carry 1.9
billion tons of freight each year (ukpia.com, 2022). If you look at the prices of fuel items from
2004 to 2021, you can see that prices are going up over time.

Analysis of Price and Quantity Trends

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It has been found that road transport is one of the biggest uses of fuel in the UK, and that most of
the fuel for road transport comes from gasoline and diesel. The price of unleaded gasoline at the
pump has gone down by 9.9 pence per liter, which is 7.8 percent less than last year. Also, the
price of unleaded diesel has gone down by 10.9 pounces per liter, which is 8.2% less than it was
a year ago (Department for Business, Energy & Industrial Strategy, 2021). The process shows
how the price of fuel is going up in different types of road transportation. The statistics also show
that the price of fuel for cars and trucks in the UK is going up. It is also clear that the price has
gone up between January 2001 and January 2021. (Department for Business, Energy & Industrial
Strategy, 2021).

In the 21st century, there are more cars in the UK than there were before. Due to more people
using cars and road transportation, the amount of fuel has gone up a lot. More diesel is being
used in different kinds of road transport in the UK (Wadud, 2016). During the mid-1990s, it is
known that the government created an incentive to switch the road transportation system to
diesel engines and to protect the environment (Wadud, 2016). It was a time when diesel engines
for cars and other vehicles on the road changed in a big way. It has also been found that the
amount of fuel used in England has gone up a lot more than in Wales, Scotland, and Northern
Ireland. It is also clear that the number of people in the process has grown because they depend
too much on cars and road transportation.

Price change due to tax change on petrol

160

140

120

100

80

60

40

20

0
April April April April April April April April April April April April April April April April April

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Information released by the UK government showed that there were 3,91,135 diesel cars in 2005
and that there were almost 6,53,969 diesel cars in 2018. (Department for Business, Energy &
Industrial Strategy, 2021). The numbers showed that the number of diesel cars on UK roads has
grown by a lot. 

UK Transport Fuel Price

160

140

120

100
Total
80

60

40

20

0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Based on the trend shown in the graph above, the amount of tax on gasoline has sometimes gone
up and sometimes gone down. In 2004, the tax on gasoline was 79%. (gov.uk, 2021). On the
other hand, the tax on gasoline will be 63% in 2021. Along with the change in tax rates, the price
of gasoline has also changed over the past 17 years (gov.uk, 2021).

Analysis of factors that affects demand and supply

There two major factors that was identified that affects demand and supply of UK road transport
fuel which is COVID-19 and Russia-Ukraine war.

Covid-19 and lockdown measures caused a reduced demand across transport fuels and levels of
supply decreased in response to this.
Road Fuels1
From the start of lockdown until the Prime Minister’s recovery strategy speech (23 March – 10
May 2020):
• Average forecourt sales in Great Britain decreased by around 60 per cent compared to average

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sales in the eight weeks prior to lockdown,
• Stock levels were high because of a fall in demand and hence a smaller number of deliveries to
forecourts was required,
• Average stock levels in forecourts peaked to 59 per cent full.
Following the recovery strategy speech on 10 May 2020:
• As more sectors in England re-opened, demand initially recovered faster in England than
Scotland and Wales,
• Demand in Scotland and Wales also increased as sectors re-opened later,
• Demand for road fuels in Great Britain increased in July and reached around 90 per cent of
typical levels seen in the eight weeks prior to lockdown by the end of July,
• Supply (stock levels and deliveries to forecourts) returned to average levels by the end of July.
Aviation Fuel

• A larger impact of the pandemic was felt in the aviation sector as the number of flights in and
out of UK declined steeply,
• In April - June 2020, UK flight traffic decreased by 90 per cent compared to 2019,
• Flight traffic increased slightly in July following quarantine exemptions to some countries.

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Demand levels in early lockdown varied between around 20 to 60 per cent of typical levels in the
eight weeks prior to lockdown. The lowest level was on Sunday 12 April (Easter Sunday) where
demand was at 19 per cent of the typical level prior to lockdown, though demand on Easter
Sunday is generally low. The lowest level excluding Bank Holidays was on Sunday 29 March
where demand was at 27 per cent of the typical level prior to lockdown. Following the Prime
Minister’s recovery strategy speech on 10 May, average forecourt sales continued to increase
every day compared with the previous week. From 11 May, average forecourt sales were above
50 per cent of typical levels before lockdown for the first time since lockdown started. Average
forecourt sales boosted upon the reopening of more sectors. Great Britain’s demand was higher
when non-essential shops re-opened in England on Monday 15 June as average forecourt sales
were approximately 13,200 litres (around 70 per cent of the typical levels seen prior to
lockdown).
In the final stage outlined by the Prime Minister (the opening of hospitality sectors on Saturday 4
July in England), average forecourt sales reached around 12,200 litres (roughly 80 per cent of
typical levels for a Saturday before lockdown). This continued to increase, and demand resumed
closer to “normal” where average forecourt sales were as high as approximately 90 per cent of
typical levels prior to lockdown, at the end of the period detailed here.

Analysis of Price Elasticity for Road Transport Fuels

Price elasticity is how a change in price affects the demand for a product, or how much of it is
bought (Lehner and Peer, 2019). In this case, the price started going down after 2013 because the
market was full at that point. After 2013, there was more supply than there was demand, which
had a big effect on the price of fuels. The price of gasoline and diesel went down in the UK
because fewer people were using them. This meant that the price of gasoline and diesel went
down. Figure 1A and 1B show how prices changed over the period from 2005 to 2020. As the
price of diesel and petrol in the UK started going down after 2013, the basic theory of economics
(roughly) held true. Due to less fuel being made, prices started going up before 2019. From 2009
on, the price of fuel went up because the supply of fuel didn't change much during that time. The
number of registered cars in the UK shows how fuel prices are sensitive to changes. From 2008
to 2013, the number of vehicles registered went down every year because people had less money
to spend. But the steady supply of goods couldn't change the price at the store (despite

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decreasing demand). Due to the cover charge of duty on fuels, the price elasticity was not kept.
Due to too much duty on fuel, the price elasticity of demand for fuel was low (not as steady as
supply). So, even though the number of cars being registered went down from 2009 to 2012, the
price stayed high.

Demand for bio and hydrocarbon petrol and diesel fuels in the
UK from 2000 to 2021
Hydrocarbon Petrol Bio-ethanol petrol Hydrocarbon deisel Bio-diesel
30,000

25,000

20,000

15,000

10,000

5,000

0
1995 2000 2005 2010 2015 2020 2025

Sum of Diesel Sum of Unleashed

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140

120

100

80

60

40

20

0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

It is evident from the graph above that until January 2013, the cost of fuel for road transportation
increased. However, it began to decline significantly after January 14 and is still anticipated to

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do so in 2021 on average. When you look at how much gasoline is used in the UK, you can see
that usage has decreased since prices have increased till 2014. (gov.uk, 2021). Gasoline
consumption decreased from 18.5 gallons in 2005 to 11.9 gallons in 2014. Diesel prices have
increased at a similar rate to gasoline prices, but because diesel is less expensive than gasoline,
demand has increased despite the high price (gov.uk, 2021).

The price elasticity also demonstrates that the amount of raw materials available on the market
has an impact on the price of road transportation fuels in addition to how people utilize them.
Because there aren't enough good alternatives and stock of a product, its price rises (Dunkerley,
Rohr and Daly, 2014). According to Hossinger et al. (2017), the gasoline price can be made up to
four euros per liter more flexible. It is suggested that the product's pricing should be determined
by the circumstances. A situational pricing approach can assist in keeping the cost of fuel in line
with the level of demand. We can conclude that the UK's present pricing curve is an excellent
illustration of elasticity because changes in price have an impact on both supply and demand.

The two primary fuels used for transportation, ultra-low-sulfur diesel and ultra-low-sulfur
gasoline, each carry an excise duty of 57.95p per liter. When the VAT is considered, the tax
equals 62% of the final gasoline pump price and 61% of the final diesel pump price
(commonslibrary.parliament.uk, 2022). The oil price increased gradually in the 1990s despite
some lows and highs, but by the end of the decade, taxation had lost its appeal
(commonslibrary.parliament.uk, 2022). The council had intended to raise taxes when prices
increased. Prices have risen a small bit in 2021 as a result of the UK's recent supply issues with
fuel. The UK government intends to reduce gasoline duty and VAT by 40% over the next two
years in order to prevent fuel prices from rising (petition.parliament.uk, 2022).

Study Geographic Area Sample Estimated Methodology

Elasticities

Alberini et al USA household 1997-2007 -0.56 to -0.69 Several

(2011) level specifications of
Static FE model

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 Dagher (2011) Colorado, US 1994-2006 -0.09 (sr)/- Autoregressive
0.23(lr) Distributed Lag

Nilsen et. al. UK 1960-2002 -0.10 (sr) Shrinkage

(2005) estimator

Serletis et al UK 1980-2006 -0.28 Static Translog

(2011) Model- NQ
Flexible
Functional form

Table 1: Collated domestic fuel price elasticity from academic literature

An Evidenced Based Analysis of the Structure, Conduct and Performance Issues in The
Production or Retailing of Road Transport Fuels

The price of gasoline is exactly proportional to how much people desire it. If there are more
people who want fuel but there aren't enough to go around, the price will have to rise. By the end
of 2017, a family's disposable income in the United Kingdom had increased by 2.3%. 2018
(ons.gov.uk). So it's safe to assume that UK households can now afford to buy more goods. So, if
prices rise, demand will remain relatively stable.

The fuel crisis has severely impacted the UK fuel industry in 2021. This is due to a variety of
issues all across the world. The lack of transportable fuel in the UK is owing to the suspension of
competition regulations between companies, the implementation of the process for obtaining an
HGV driver's license, and British Petroleum's temporary closure of 23 petrol stations (bbc.com,
2021). It was established who would receive fuel first and who would receive it later. As the fuel
crisis worsened, the price of gasoline skyrocketed in 2021.

Because of COVID 19's negative impacts, there isn't as much oil in the pumps as there used to
be. Fuel prices have risen slightly as a result of panic buying when the epidemic began.
However, once the tank was full, the lockdown was implemented, and all transit was halted. As a
result, fuel demand in the United Kingdom was the lowest it had ever been (ons.gov.uk, 2018).

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For example, in the same month of 2020, the price of gasoline was 18.3% lower than in the same
month of 2019. 2018 (ons.gov.uk).

Summary

The lifeblood of any country's transportation system is gasoline for cars. The market research's
first component, which examined the UK's road transport market, covered issues such market
size, product categories, taxation policy, and regulatory framework. The second section has an
analysis of the quantity and price of fuels during the last 15 years. In the final section, we
examine the effects of many problems, such as COVID 19 and the scarcity of gasoline, on the
current fuel supply and demand. This market study takes into account the price elasticity of
demand for transportation fuels in the UK.

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