Gap between diesel and petrol prices shrinks by 90 percent

Motorists spurred to switch from petrol to diesel cars because the pump price difference is currently shrinking should think long and hard before doing so, warns the AA. That is unless their old car is eligible for a car scrappage scheme grant.

The difference in price between a litre of petrol and more expensive diesel has now shrunk to 1.49p, 89% down from the record high of 13.85p at the end of July last year.

With diesel-engined cars getting 15-20% more MPG than most petrol equivalents, a new car that is on average now saving its driver 2.5p a mile looks a sound investment, says the AA.

However, a diesel car often costs around £1,000 more than a petrol one and breaking even can come after 40,000 miles. Last July, when the average saving was 1.38p a mile, this break-even point came after 72,464 miles.

Consequently, the AA urges buyers to learn from recent history. An early warm spring in 2007 caught US fuel suppliers stocked with diesel and the resulting surge in demand for petrol, from the premature start of the driving season pushed global wholesale prices up to diesel levels.

With UK petrol and diesel pump prices level-pegging for the first time since 2001, many car owners decided to join the ‘dash for diesel’.

But, by December 2007, the fuel price difference had risen to 5p, before rising to more than 13p last summer – potentially adding more than three year’s mileage to the break-even point of the average driver.

The current closing of the price gap results from a glut of diesel, caused by recession-hit industrial and transport demand, restraining price increases while petrol prices have soared in recent months.

Once the global economy begins to recover, demand for diesel will pick up and the price difference will open up again, says the AA.

Additionally, extra demand for diesel, from car populations in east Europe and elsewhere switching to meet CO2-reduction targets, will aggravate the difference, particularly when the UK doesn’t produce enough.

AA president Edmund King said: “The AA advises anyone considering a switch from a petrol to a diesel car to do their sums carefully and not bank on the current fuel price difference lasting long term. The big gamble is on how long the recession lasts, whether or not global demand for diesel remains depressed.

“Potential buyers, we think, should reckon on a potential petrol-diesel price difference of around 10p a litre to reduce the impact should the 2007-8 experience repeat itself. Cars that average less than 15,000 miles a year are unlikely to recoup the initial extra cost of a new diesel car within their first three years and may not make sound investments for owners who habitually change their cars before the first MoT test.

“However, the Government’s scrappage scheme offers less well-off new car buyers a limited but unprecedented opportunity to buy into diesel technology and fuel efficiency without having to worry about the additional start-up cost.”