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Fuel prices not being manipulated, finds OFT

The OFT analysis, which follows a four-month investigation, found that competition was working well and so a full inquiry will not be launched, although the OFT added that it has identified an absence of pricing information on motorways as a concern and does not rule out taking action in some local markets if there is persuasive evidence of anti-competitive behaviour.

Clive Maxwell, OFT chief executive, 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.'

The research has been called into question by some organisations, including the RMI Petrol Retailers Association (PRA), the trade association representing independent forecourt retailers in the UK, which says it fails to act on fuel market manipulators. The PRA also criticised the OFT decision to not proceed with a full Market Study into the UK retail fuels sector.

Brian Madderson, PRA chairman, said: ‘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.

‘However, we are encouraged that the OFT has undertaken national sampling and found no evidence to substantiate the urban myth perpetuated my motoring organisations and the media that prices ‘go up like a rocket and down like a feather’.

‘Similarly, their findings confirm that the rise in fuel prices results from a quadrupling of crude oil costs and increases to duty and VAT. This does nothing to expose the market manipulators of wholesale costs though it does exonerate the independent retailer from claims of “profiteering”.’

The PRA also warned of nationwide implications that would result in a higher rate of filling station closures, higher fuel prices and a higher risk of immediate transport disruption in a crisis.

The AA added its comments, with president Edmund King saying: ‘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.’

OFT main findings:

 

  • Differences in pump prices between neighbouring towns – The OFT found that petrol and diesel tend to be cheaper in local areas that have a greater number of local retailers, in particular areas where there are supermarket forecourts. 
  • Differences between urban and rural areas – The OFT's analysis found that in August 2012, for example, petrol was around 1.9ppl more expensive and diesel around 1.7ppl more expensive in rural areas than in urban areas. There appear to be a number of factors which account for these differences including lower throughputs per forecourt, fewer competitors (including supermarkets) within a local area, and higher transport costs for getting fuel to rural forecourts.
  • Independent dealers' ability to compete fairly in the market – The OFT examined claims that supermarkets' and major oil companies' practices may be making it more difficult for independent dealers to compete with them. However, the OFT 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 OFT will continue to consider any credible evidence it receives and consider taking action where practices appear to breach competition law. 
  • Rocket and feather' pricing – The OFT investigated the widely held perception that pump prices rise quickly when the wholesale price goes up but fall more slowly when it drops. It analysed 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, but found very limited evidence to support such claims.
  • The OFT has also found that fuel is often significantly more expensive at motorway service stations. In August 2012, for example, prices were on average 7.5ppl higher for petrol and 8.3ppl higher for diesel than at other UK forecourts. While these differences may be explained to some extent by the higher costs associated with running motorway forecourts, the OFT is concerned that drivers are not able to view prices until they have pulled into the service station. It has therefore asked the Department for Transport to consider introducing new road signs that would display service station petrol and diesel prices for motorway drivers.

 

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.