How Fuel Prices Work: From Crude Oil to the Pump

Fuel prices follow a chain from crude oil extraction through refining, distribution, and taxation to the final pump price. Understanding this chain helps interpret the price differences you see between countries.

Crude oil: The starting point

Global crude oil prices set the floor for all refined fuel products. Crude is traded as Brent (European benchmark) and WTI (US benchmark). When crude rises, pump prices follow with a 1–3 week lag.

Refining

Crude oil is processed into petrol, diesel, kerosene, LPG, and other products. The refining margin fluctuates based on capacity, maintenance, and seasonal demand.

Taxes: The biggest variable

In most European countries, taxes make up 40–60% of the pump price. The two components are excise duty (fixed per liter) and VAT (percentage of final price). This is why the same fuel costs €1.30/L in one country and €1.90/L in another.

Summary

Pump price = crude oil + refining margin + distribution + excise duty + VAT + retail margin. Most cross-country differences come from tax. Most within-country differences come from retail margins and competition.