Why record diesel prices have further to go

The price of diesel has hit a record UK high, with experts warning of a toxic cocktail of pressures set to drive the cost into uncharted territory.

Data from RAC Fuel Watch showed the average cost of a litre crossing the 199.09p peak set in 2022 to sit at a new high of 199.18p.

Fuel costs are up globally due to the impact of the Middle East conflict that has hurt production and delivery of oil and refined products.

Money latest: Reaction as diesel hits unwanted milestone

But diesel, a bit like natural gas, is suffering more acute challenges.

Pleas by American farmers and hauliers to bring diesel costs down in the USA could be about to drive prices even higher for us in the UK.

Here, Sky News explains the reasons behind the rising cost, why petrol is lagging behind, and the risks of a fresh energy-driven spike in inflation.

What are fuel prices in the UK?

The RAC data shows the average cost of a litre of diesel up by 15p so far this month.

The average unleaded cost stands at 174.13p - up more than 11p in September so far.

What's caused diesel and petrol prices to rise?

Fuel prices have been an upwards contributor to inflation since March.

Petrol and diesel costs were first to react to the surge in global oil prices at the start of the US-Iran war, shooting up within hours before reflecting twists and turns in peace efforts ever since.

The additional headwind we now face is that heightened price pressures will naturally become more baked in as we head towards peak winter demand.

Why is diesel so expensive now?

Wholesale oil prices are volatile and above $106 a barrel currently. The figure stood at $72 before the war.

The aggravating factor now is a growing squeeze on diesel availability.

RAC head of policy, Simon Williams, said earlier this week: "With concerns over the global supply of wholesale diesel, the question facing drivers is no longer 'when will the average price exceed 199.09p?' but 'how far above £2 a litre will it climb?'.

"Only a sudden and sustained drop in the cost of oil can prevent an average diesel pump price of over £2 a litre happening, which sadly appears highly unlikely."

France - Europe's largest user of diesel - is already seeing price protests and even growing fuel shortages caused by drivers rushing to lock in lower prices.

The French government has insisted it currently has enough supply to easily cover normal demand.

Why is the UK so exposed?

There is deep cause for concern, as the country has historically low levels of storage - as the chart above shows - at a time of a global supply crunch-driven price spike.

Stockpiles have fallen as refineries have closed down, leaving the UK exposed.

Part of the disparity between petrol and diesel price growth here is down to the fact that while we make enough unleaded to cover domestic demand, we only produce about half the diesel we need.

That leaves availability, for 40% of the vehicles on our roads, at the mercy of imports.

The government has indicated the UK has adequate supply and there is no cause for concern.

What about the rest of the world?

Demand is high internationally at the moment due to the effects of the supply squeeze caused by the Middle East conflict.

Limited diesel refining capability globally means volumes can't just be increased elsewhere to offset losses from the likes of Saudi Arabia and Kuwait.

It is this fact that explains why diesel costs are so high relative to the oil price: demand for diesel is exceeding supply and stiff competition means a stiff price must be paid to secure a delivery.

Russia's role

One reason why diesel is rising more sharply is down to Russia, once the largest exporter in Europe and UK supplier before its invasion of Ukraine.

But it has, since the summer, banned exports and is even having to import supplies to offset the loss of domestic diesel supplies caused by Ukrainian attacks on its refining operations.

What's this 'diesel export ban' I've been hearing about?

The US - the largest exporter of diesel globally and now responsible for around a third of UK imports due to the loss of Russian supply - is considering its own ban on sending diesel shipments abroad.

The White House aims to conserve stocks and bring down prices as the country's own costs hit new peaks almost daily.

While Donald Trump wants a ban, his energy secretary Chris Wright thinks it's a bad idea.

Many economists and market experts agree with Mr Wright, arguing a ban could prove counterproductive and would amount only to a misguided sweetener for disgruntled Republican voters heading into the US mid-term elections.

Ipek Ozkardeskaya, senior analyst at Swissquote, said of the US plan: "If it restricts exports, global diesel prices could simply spike.

"And because US refiners would lose part of their export market, they could simply produce less - eventually tightening the supply of other fuels at home...Terrible idea."

Thomas Pugh, chief economist at consulting firm RSM UK, said: "Not only would a ban be bad economic policy for the US given that it's the single biggest supplier of diesel to the UK, it would also be a major issue for the UK economy, which would result in sharp price increases and possible shortages at the pump."

Some American analysts have told US newswire servive AP that an export ban could ultimately cause a global recession.

Are prices fair?

The claim against fuel retailers for years has been they are quick to put prices up, but slow to cut them.

The average margin remains 6%, according to the industry which says pump price differences can often be explained by retailers' own purchase contracts.

The Competition and Markets Authority has argued for years that UK drivers pay over the odds.

Why a high diesel price is more sensitive for the economy?

Rising diesel costs aren't just a problem for drivers generally but a wider inflation threat.

That is because diesel is the engine of the UK economy.

Rising costs affecting truck and van deliveries, for example, risk being passed on down supply chains to the end consumer at their busiest time of the year ahead of Christmas.

That's the kind of inflation threat that worries the Bank of England, which is currently widely tipped by financial markets to impose an interest rate rise at its next meeting in November.

Could the chancellor help bring down the price of diesel?

Remember, tax (VAT and fuel duty) accounts for just over half of the cost of a litre of fuel - and it is also set to rise.

Fuel duty hikes, planned by Rachel Reeves to begin in January, could be scrapped or further delayed by her successor John Healey at the budget.

While he's under pressure to overturn a Tory government 5p-a-litre reduction to help balance the books, Mr Healey would be expected to question the wisdom of raising prices at the pump at a time when they are clearly inflationary in nature and VAT takings are already up due to higher prices.

Could he even announce a fuel duty cut? Watch this space.

(c) Sky News 2026: Why record diesel prices have further to go