Petrol prices investigation: ‘Competition working well’

In the long-awaited report on its investigation, the competition watchdog blamed higher taxes and crude oil prices for the rising petrol and diesel prices rather than a lack of competition.

But the OFT’s report identified an absence of pricing information on motorways as a concern and did not rule out taking action in some local markets if there is persuasive evidence of anti-competitive behaviour.

The review, launched in September, has been looking at whether reductions in the price of crude oil are being passed on to motorists.

Concerns

The OFT called then for information from the industry, motoring groups and consumer bodies amid concerns over the prices charged for petrol and diesel at the pumps.

The watchdog carried out detailed analysis of pricing data and found that, pre-tax, the UK has some of the cheapest road fuel prices in Europe.

In the 10 years between 2003 and 2012 pump prices increased from 76 pence per litre (ppl) to 136ppl for petrol, and from 78ppl to 142ppl for diesel, the report said. It blames this on an increase of nearly 24ppl in tax and duty and 33ppl in the cost of crude oil.

The OFT found that petrol and diesel tend to be cheaper in local areas that have a greater number of local retailers. Its analysis also showed that on average motor fuel was more expensive in rural areas than in urban areas.

Local differences

It puts this down to a number of factors including lower throughputs per forecourt, fewer competitors within a local area, and higher transport costs for getting fuel to rural forecourts.

The OFT also examined claims that supermarkets’ and major oil companies’ practices may be making it more difficult for independent dealers to compete with them. But it said that it has not, to date, received evidence of any anti-competitive practices being used against independent dealers that might lead it to take enforcement action.

The widely held perception that pump prices rise quickly when the wholesale price goes up but fall more slowly when it drops, was also dismissed by the OFT after analysing the relationship between retail and wholesale prices at both a national and local market level, as well as the relationship between crude oil prices and wholesale prices.

Lack of competition

The OFT said the UK retail road fuels sector is estimated to be worth around £32bn. Petrol prices rose by 38 per cent between June 2007 and June 2012, while diesel prices went up by 43 per cent.

The watchdog said on launching the review that it would explore a number of claims about how the sector is functioning, including whether supermarkets and major oil companies are making it more difficult for independent retailers to compete.

The review also set out to consider whether there is a lack of competition between fuel retailers in some remote communities.

The OFT began to look at the issue last February when it received a submission from the Retail Motor Industry (RMI), which raised concerns about the ability of independent fuel retailers to compete in the market.

Below-cost pricing

Issues raised by the RMI, a trade body which represents car dealers, independent garages and petrol retailers, included low and below-cost pricing of road fuels by the big four supermarkets.

Brian Madderson, chairman of the RMI’s Petrol Retailers Association (PRA) said the OFT had failed to act “on simple evidence”, which could result in more filling station closures and higher fuel prices and make the UK more vulnerable to transport disruption in a crisis.

“How can the OFT, supported by government, try and tell motorists and businesses that the market is working in the consumer’s interests?

“As independent retailers, we are left trying to explain the unexplainable to our forecourt customers who will rightly be angry at another unwarranted price hike.”

“The establishment has once again turned a blind eye to the need for a full market study which would have unmasked the market manipulators, provided proper transparency and helped our economic recovery.”

Full investigation

But the PRA added that it was encouraged that the OFT’s investigation had find no evidence to substantiate claims that prices “go up like a rocket and down like a feather”.

The Forum of Private Business has described the OFT’s decision not to launch a full investigation into the state of fuel pricing as a “missed opportunity”.

On supermarkets increasing competition, the forum’s head of policy Alex Jackman said: “The growth of supermarket filling stations has coincided with the decline of independents. It may be true that they increase competition, but by offering healthy discounts only when large amounts are spent in store, those discounts are not without their own cost.

“We don’t understand how the OFT can come to the conclusion they have bearing this in mind. This is a classic example of big supermarkets using their size and buying power to assimilate local markets for their own gain.

“They simply have too much power, and we think this was a missed opportunity by the OFT to take this further.”

Responding to the Office of Fair Trading report that the petrol market is working well, Friends of the Earth’s Head of Campaigns Andrew Pendleton said:

Friends of the Earth’s head of campaigns, Andrew Pendleton, said the government should do more to accelerate the production of electric and fuel-efficient vehicles.

“Cash-strapped motorists are understandably concerned about rising petrol prices, but until we end our cars’ dependency on oil we’ll all continue to pay a high price at the pumps.”