’Sharp increase in fuel prices’. Fleet managers are used to hearing this refrain. With one crisis following hot on the heels of another, soaring prices at the pump are becoming the new reality.
The Ocean teams offer you some pointers for understanding the phenomenon and how to cope with it.
1. How are the fuel prices charged at service stations calculated?
Various factors are involved when it comes to setting prices. They fall into three categories:
The price of crude: approximately one quarter of the price at the pump
The main component of prices at the pump is the cost of the crude oil, which is the raw material sold on the markets after extraction. It is expressed in dollars as the price per barrel. In France, the price of a barrel of Brent (from the North Sea) is the reference used to set the crude oil price on the financial markets.
Gross margins for refining and distribution: less than 15% of the price at the pump
These reflect the operating costs and margins of those involved in the supply chain: refining linked to the processing of oil into fuel, then the costs levied by the transport and distribution companies that bring the fuel to station forecourts.
Taxes: more than 60% of the price at the pump
These include the domestic tax on the consumption of energy products (TICPE), the rate of which is set each year by the Finance Law, and VAT at 20% (80% of which can be reclaimed for tourism vehicles and 100% for utility vehicles - the rates are now aligned for petrol and diesel).
2. Why are prices increasing?
The soaring prices are linked to a combination of factors that particularly affect the purchase price of raw materials. Meanwhile taxes have been increased particularly on diesel.
Change in price per barrel
The sustained increase in prices since mid-2020 is mainly linked to the increase in price of a barrel of Brent, which has increased fourfold since 2020. The tensions linked to the Covid-19 pandemic have affected this price.
The war between Russia and Ukraine has amplified this price increase: the war has affected oil supplies (drop in Russian exports) and has caused the price of crude to climb.
The euro has also lost value in world markets in the last 20 years. As a result, France is paying more per barrel in dollars than when the euro was strong against the dollar (particularly in 2008). This variation in exchange rates has a direct effect on retail prices for fuel.
The proportion of tax has increased particularly on diesel to eliminate the tax advantage of diesel. Tax levels have therefore been made to catch up since 2014 in line with the government’s energy transition policy. Although they account for a large amount of the price at the pump, they are not the main cause of the dramatic increase in prices.
3. How to cope with soaring prices
The greater the share of energy costs in a company’s overall expenditure, the greater the impact that will be felt.
For fleet managers, the situation means both adopting short-term cost-saving measures to counterbalance this increase, but also to treat this as a medium to long-term trend, because the situation is expected to continue.
To go deeper on courses of action, see our article on managing fuel costs and discover ways to:
- Improve your budget management with fuel cards
- Eliminate the unnecessary mileage on your vehicles’ odometers
- Improve your control of fuel management by keeping your vehicles properly maintained
- Support your drivers with eco-driving
- Take action when renewing your fleet