There’s no escaping it, petrol prices are going up. The average price for a litre of unleaded fuel in the UK is currently sitting at 118.7p and many experts believe that, as the price of oil continues to reach record levels, our wallets will continue to feel much lighter with every trip to the pumps.

Unfortunately, that’s not the sort of statement that is going to make things any easier for the millions of motorists and hauliers for whom the car, motorcycle or truck provides vital links to work, family, friends and leisure. Motoring already takes up a significant chunk of people’s income, once tax, maintenance and motorcycle insurance is factored into the equation, so higher forecourt bills are hardy welcome in the current climate.

Supply & Demand

Depending on who you listen to, anything from the weak dollar to oil company shareholders are thought to be to blame for the high prices although in essence, supply and demand is thought to be the biggest culprit.

Aside from a growth in use in most developed countries, developing nations such as India, China and the United Arab Emirates are also using considerably more mineral products than they used to. Compared to usage levels in 2005, the world now consumes an extra 3 million barrels a day.

But whilst demand is growing, supply is doing anything but. Many of the oil producers in the Middle East, who form much the bulk of the powerful OPEC group, are reluctant to increase supply, (a problem which Prime Minister Gordon Brown recently tried to resolve on his visit to Saudi Arabia), others are already working at full capacity and political unrest in nations like Iraq, Iran and Nigeria (where attacks on oil rigs have reduced output by around 25% alone).

Added to that, market speculation is thought to be rife. The theory is that the weak dollar has left investors looking for more lucrative investment opportunities with oil being a popular option. Those investors hold onto that oil in preparation for further increases, limiting supply and forcing prices upwards. The actual affect on prices is widely disputed however by those on Wall Street.

And then of course, there’s tax.

The biggest issue behind many of the fuel protests that have been seen recently, fuel duty and other forms of taxation form a significant part of the price we pay at the pump.

Petrol in the UK attracts two forms of taxation, fuel duty and VAT. Duty is a flat-rate charge, currently standing at 52.35p per litre of unleaded. It does not alter as the price of fuel fluctuates and can only be changed by the chancellor in his annual budget speech. A further 2p increase in fuel duty was postponed until October by Chancellor Alistair Darling in the 2008 budget although political analysts are speculating that it may be postponed further still as prices continue to rise.

VAT is then added at a rate of 15%, slightly lower than the standard 17.5% rate that we pay on many other commodities. Of course, being a percentage, the amount of revenue raised by this method fluctuates as the price of fuel changes and controversially, fuel duty is included in the taxable amount.

The result is that UK motorists pay the highest amount of taxation on fuel in Europe although surprisingly, we don’t pay the highest price. Research by the AA suggests that based on European average prices, the French, Dutch, Germans, Swedes, Norwegians, Finnish, Danish and Belgians all paid more for a litre of unleaded than we did here in Britain during the month of May 2008, although we do have the second highest diesel prices behind Norway.

So what about those spectacular profits that the major oil companies reveal? Are they gaining from our increasing fuel bills?

Well, not exactly. In recent months, Shell announced record profits of £13.9bn whilst BP’s profits for 2007 were a more modest £8.76bn, both figures which drew criticism from various quarters but very little of that profit was actually made on UK forecourts.

When you actually break down a typical 116p litre, you find that as much as 70 pence (61%) of the price of that litre is made up of duty and VAT. Of what’s left, around 37p is the cost of fuel itself, leaving just 9p profit for the retailer. From that, the garage owner has to cover his overheads including delivery, staff costs, rent and tax.

Instead, the money behind these record profits comes from what is known as “exploration and production” – finding and extracting the oil. Unfortunately for motorists, competition regulations prevent large oil companies from subsidising their retail arms (i.e., the petrol stations) from these profits as it would make it almost impossible for independent garages, many of whom operate in rural areas of Britain, to compete.

It’s highly unlikely that, despite the hardship facing many motorists, taxation on fuel will fall. Fuel duty provided the public purse with almost £24bn in 2006-07 and recent protests by hauliers have not been campaigning for a drop in fuel duty across the board but instead for a duty rebate solely for the haulage industry, similar to the one enjoyed by public transport operators.

Make the most from your MPG

There are things however that you can do to offset the cost of filling up your bike or car. You aren’t going to find your fuel bills plummeting by any means, but there are lots of nifty tricks and tips that you can do to at least soften the blow a little.

If for instance, you’re prepared to travel around the local area for the cheapest fuel, then take a look at www.petrolprices.com. This free service checks the price of fuel at over 9,700 forecourts around the county and will point out both the cheapest and most expensive stations in your area. A quick search of garages within a 10 mile radius of Carole Nash HQ shows a difference of 10p per litre between the dearest (124.9p) and cheapest (114.9p) unleaded – that adds up to a saving of £2 per visit when filling up a 20 litre tank. Fill up once a week and that’s a possible £104 annual saving. In other areas, the savings could be even larger.

However, if you find yourself invariably using the same petrol station or chain of garages for every fill-up, check to see if that garage runs a loyalty or rewards scheme.

Shell for instance has its own ‘Drivers Club” whilst BP will add points to your Nectar card with every purchase. As these accumulate, you can use exchange them in for gift vouchers, discounts on various products and even Air Miles.

It’s also worth keeping an eye out for supermarket incentives. Most of the “big-four” occasionally offer to knock a few pence-per-litre off the cost of filling up as a thank-you buying your groceries in store. As we speak, Tesco are offering a 5p-per-litre discount for anyone spending £50 or more in their stores until July 20 2008. You’ll also come across loyalty points here as well, with Tesco and Morrison’s both having their own schemes whilst Sainsbury’s, like BP, accept Nectar cards.

There are other sneaky tips to offset your costs as well. For instance, if you usually pay for your fuel on a credit or debit card, check to see if you are using the “right” card.

Cash-back credit cards give a percentage of your spending back to you and, as fuel tends to be a regular outlay, you could significantly off-set the cost of filling up your car or bike. What’s more, pay your bill in full every month and you won’t find the interest eating into the benefits.

There are plenty of credit cards out there. Most offer cash-back on almost any purchase whilst Shell and ASDA both offer cards with specific deals for fuel purchases from their forecourts. The best advice here is just to shop around for the best deal. At the moment, American Express is offering up to 5% cash-back in the first year. Using the weekly 20 litre, 115.9p-per-litre fill-up example as before, that would return more than £55 in cash-back over the 12 months. Others, including Egg and Barclaycard, offer slightly less although the cards are more widely accepted.

One other tactic that tends to crop up when talking about getting the most from your fuel tank is to fill up on cold days or at night. Oil becomes denser at lower temperatures and so, in theory at least, you’ll get more for your money. In practice however, there isn’t really any tangible benefit.

Of course, big benefits will also come from adopting a more frugal riding or driving style.

Ditching any extra weight provides a considerable benefit to your mpg. If you’ve got lots of unnecessary luggage in your tank bag, leave it at home.

Inflating your tyres to their correct level is thought to provide a 5% saving on fuel whilst adopting a more sedate riding style can provide plenty of improvements.

Data collected by traffic analysts at Keepmoving.co.uk has suggested that motorway drivers are cutting their speed in an effort to improve fuel consumption, with average speeds parts of the motorway network seeing a 0.9% drop in the first half of June 2008 compared to the same time 12 months ago. Tests have shown that just sticking to the speed limit can considerably reduce the rate at which your fuel gauge needle moves, with the average motorist travelling at 90mph on a motorway estimated to spend £1.20 more on fuel every eight minutes compared to a motorist travelling at 70mph.

Further savings can be made around town. Instead of racing from red light to red light, take it easier, accelerate slowly and watch the savings add up and let’s not forget to cut out any unnecessary journeys. In the 2007 RAC Report of Motoring, one in ten of those questioned confessed to never walking anywhere. Those short trips to the local shop all add up, much more than you probably expect, so try cutting them out. Not only will you cut your fuel use, you’ll also cut your mileage as well, which can only be good for your motorcycle insurance premium!

All of this might sound incredibly dull and dreary. After all, we all want to enjoy our motorcycles, particularly in the summer evenings, and nobody wants to ride around thinking about which vouchers to use in certain garages and if the petrol in the pump is the right temperature. The reality however is that £5+ gallons are probably here to stay for the foreseeable future, meaning that many of us are experiencing higher commuting and transport costs. The tips above aren’t going to offer huge discounts, but they may well help to soften the blow in the middle of the current credit crunch.