The cost of filling a car with petrol or diesel in the UK at the start of 2016 is lower than at any time in seven years, as supermarkets’ cuts in both fuels to under £1 a litre grabs plenty of headlines.

According to the AA, all four of the big supermarkets brought the price of a litre of unleaded fuel down to below £1 during December.  

But the current phase of price drops at the pumps started to kick in exactly a year ago, as pump prices started the year at around £1.16 a litre for unleaded fuel, and £1.22 for diesel.

At around that time, supermarkets were still where the cheapest fuel could be found, with the AA reporting them selling unleaded fuel for a shade over £1.07 a litre. However, there were signs of the lower oil price helping make other fuel outlets more competitive, with the gap between the average supermarket price and the average cost of a litre of fuel in the UK as a whole shrinking to 1.8 pence per litre.

All Good News - Or Is It?

On the face of it, you’d think there would be no downsides to this trend of falling prices, as all road users benefit from paying less to fill their vehicles’ tanks. After all, the drop in fuel prices has been cited as the main reason for the UK seeing a period of zero inflation in its consumer prices.

Doubtless, any fall in the price of a product which constitutes a major component of their cost of living is sure to be felt positively in most people’s pockets - but if the world is in for a period of lower oil prices, is now the time to start paying less attention to the fuel consumption figures for your next car?

Well, the answer broadly is no, for these reasons:

• Running costs for all vehicles may well be lower due to it costing less to fill up, but there are still big differences between the most and the least economical vehicles - and that applies to any category of vehicle, from a small car to a large truck. This means that buyers can still benefit from big cost savings by choosing a vehicle for their needs which boasts the best possible fuel economy.
• With fuel prices at around £1 a litre, it still means that it costs in the region of £45 to fill up an average-sized family car - so it still represents a major outlay for most families. And for businesses which run bigger vehicles with a higher fuel capacity, those running costs are still a major factor, for which a temporary fall in the cost is unlikely to have any appreciable effect.
• The main reason why oil prices have dipped is a worldwide drop in demand, and weak demand for oil is a major sign that businesses are working at some way below their previous levels of output. So if demand is low for a range of goods, it means that manufacturers are unlikely to be able to consider investing in increasing their capacity and, as a result, taking on more workers or raising the pay of their existing staff.
• Fuel may be the biggest single item of any vehicle’s running costs - but taxation, insurance and maintenance also take big chunks out of the budget, and still need to be paid for. So a drop of a few pence in the price of each litre of fuel actually represents pretty small beer in the overall scheme of the cost of ownership and operation.

Good Habits Worth Holding On To

The amount of fuel any vehicle uses still makes a massive difference to how much you can expect to have to budget to keep it on the road. So even though you might feel better off when you drive away after filling up when you’ve just paid 99.9p per litre, if you’re still returning to the pumps at the same interval, you’ll only be seeing a marginal difference from when you would have paid, say, £1.15 for every litre, of around £7.50 per tankful - see the example below.

 

Cost per litre of fuel  Number of litres per tank   Cost of filling tank

            115p                                  50                                 £57.50

            100p                                  50                                   £50

                                                                                                     Saving £7.50

 

You also need to consider that there’s always the temptation that, because you’ve noticed that filling up is costing less, you’ll let go of some of the economical driving habits which you acquired while those higher prices prevailed. You might be once again racing away from the lights, leaving the heater and/or air conditioning on for longer periods, or keeping your work gear in the van rather than taking it out when it isn’t needed for the sake of saving a bit of extra weight.

Every one of these good driving habits helps you save fuel, and might have been considered important when you were paying those higher prices. But now that you’re paying less, have you fallen into the trap of letting your driving discipline slip a little?

If those habits extend to keeping an eye on the claimed fuel consumption figures - even in spite of the fact that there are notoriously inaccurate - you can still get a good picture of how economical a vehicle will be relative to its direct competitors by looking at these, so can still use this as a factor to guide you when you’re shopping for a new car.

After all, very few of us are rich enough to be able to overlook practical considerations such as how much we’re paying to keep ourselves on the road - especially if it’s central to our livelihood.

What Goes Down…

So by all means let 2016 be the year you decide to upgrade your choice of vehicle, for business or pleasure. However, don’t forget that, just like our interest rates which might currently be low, meaning that you’ve been able to take out a bigger mortgage than you might otherwise have been able to afford, fuel prices are also determined by factors which are well out of our control.

So if you find yourself having bought a bigger, faster car in the hope that petrol will stay as cheap as it is now, consider where that might leave you if fuel prices head back towards considerably higher levels.

In short, by all means use the current market to seek out something newer, bigger or faster - as, after all, there’s never been so much choice out there. However, think about whether you’d still feel as happy with your decision if you find yourself paying another 30p per litre, or possibly £15 for every fill-up.

As we’ve pointed out above, what goes down often also has a nasty habit of coming back up, and you won’t want to get caught out when it does.