UK: Competition in road fuel market is ‘working well’, says OFT
12:40 30 January 2013
COMPETITION in the UK road fuel market is “working well” and rises in pump prices over the past decade are largely due to increases in tax and the cost of crude oil, the Office of Fair Trading (OFT) has concluded.
The OFT said it had found “very limited evidence” that pump prices rise quickly when the wholesale price goes up but fall more slowly when it drops.
However, it said its investigation into the market had identified a lack of pricing information on motorways as a concern and it did not rule out taking action in some local markets if there was “persuasive evidence of anti-competitive behaviour”.
The OFT launched a call for information on the UK road fuel sector in September last year to determine whether there were competition problems that need to be addressed before investigating concerns over the prices charged for petrol and diesel at the pumps.
Campaigners had called for the watchdog to announce a full investigation into the sector, saying there needs to be greater scrutiny.
But the OFT said that the UK had some of the cheapest pre-tax road fuel prices in Europe, noting that in the 10 years to 2012 pump prices increased from 76 pence per litre (ppl) to 136ppl for petrol, and from 78ppl to 142ppl for diesel, caused largely by an increase of nearly 24ppl in tax and duty and 33ppl in the cost of crude oil.
It said a key feature of the sector over the past decade had been the growing influence of the big four supermarkets, which had increased their share of road fuel sold in the UK from 29% in 2004 to 39% in 2012, and with the ability to sell at cheaper prices.
It recognised that many independent dealers had found it difficult to compete in the sector, with the overall number of UK forecourts falling from 10,867 in 2004 to 8,677 in 2012.
The OFT found that petrol and diesel tended to be cheaper in local areas that had a greater number of local retailers, in particular areas where there were supermarket forecourts, with prices tending to be more expensive in rural areas than in urban areas.
It also reported that it had not received evidence of any anti-competitive practices being used against independent dealers that might lead it to take enforcement action.
Its analysis of 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 at a national level, turned up “very limited evidence to support claims of so-called rocket and feather pricing.
But it warned that fuel was often significantly more expensive at motorway service stations, with average prices in August 2012 7.5ppl higher for petrol and 8.3ppl higher for diesel than at other UK forecourts.
The OFT said it was concerned that drivers were not able to view prices until they had pulled into the service station and had asked the Department for Transport to consider introducing new road signs that would display prices for motorway drivers.
OFT chief executive Clive Maxwell said: “We recognise that there has been widespread mistrust in how this market is operating. However, our analysis suggests that competition is working well, and rises in pump prices over the past decade or so have largely been down to increases in tax and the cost of crude oil.
“Our call for information has not identified any evidence of anti-competitive behaviour in the fuel market at a national level, where competition appears to be strong. There may be some issues at a local level. Where we receive evidence of potential anti-competitive behaviour we will consider taking action. For example, we have recently opened an investigation into the supply of road fuel in the Western Isles of Scotland.”
However, campaigners said they were “extremely disappointed” with the OFT’s findings.
FairFuelUK spokesman Quentin Willson said: “UK consumers will be bitterly disappointed. The nation will feel let down. Quite frankly, I’m shocked. The OFT investigated in 1998 and now have done so again. Every motorist and business in Britain instinctively knows that something’s not right. The Americans and the Germans are holding inquiries – why aren’t we?
“The OFT appears to have failed to address the key issues of why diesel is more expensive than unleaded in the UK when this is not the case in Europe, why falls in the oil price take so long to be reflected at the pump and why there are such variations in price, often from the same branded forecourts, within the same area.
“They did not address the whistleblower evidence of potential rigging of the oil commodity market. Where is the fairness in all of this?”
RAC technical director David Bizley said: “We’re extremely disappointed to hear the OFT will not be launching a full-scale review of petrol and diesel pricing in the UK. We have campaigned long and hard for greater price transparency and will continue to do so until this is recognised as a serious issue.
“UK consumers have seen a 38% increase in the price of petrol and a 43% increase in diesel costs between 2007 and 2012. The reasons behind this massive rise need to be conveyed clearly to the motoring public and justified so that households, businesses and the economy as a whole are not harmed by ever-increasing pump prices.
“RAC research has demonstrated that the car is an essential part of day-to-day life of a vast number of families. As many as 53% of people said they could only transport their children to school by car, while 57% admitted they could not do a weekly food shop and other essential activities without their vehicle.
“It is a great shame the OFT has not taken this opportunity to instigate a full investigation into this issue which many motorists view as daylight robbery. Our members want to see fairness and transparency and the authorities and industry bodies have an obligation to deliver this. We strongly urge the OFT to reconsider the decision.”
The AA said drivers would be bitterly disappointed that the OFT had failed to address their frustration with prices on the forecourt.
AA president Edmund King said: “The OFT sees the fuel pricing market as competitive but this clashes with drivers’ frustration on the forecourts. If fuel pricing is fair and competitive, there is no reason not to publish petrol and diesel wholesale prices to prove the point and reassure motorists.
“Since 2005, we have campaigned for the wholesale price to be made transparent so that drivers can see whether pump price movements are a fair reflection of costs. We continue to hold that view and will push hard for that to happen.
“The OFT are not ruling out action at local level and its call for motorway fuel price signs could bring more competition. But drivers deserve a better explanation of why prices fluctuate wildly and who is driving this - from the pump back to the well.”