An urgent review of the UK road fuel market carried out by the UK’s competition regulator has revealed initial concerns and the need for further investigation.

The CMA said further investigation into pump pricing is needed

The probe by the Competition and Markets Authority – requested last month by the Business Secretary Kwasi Kwarteng amid record fuel prices despite March’s fuel duty cut – has found a growing gap between the price of crude oil when it enters refineries, and the wholesale price when it leaves refineries as petrol or diesel.

It’s also said that there are significant differences in price between many rural and urban areas and identified issues with the gap between wholesale prices and retail prices.

On the back of this, the CMA is to start an in-depth market study with immediate effect.

The review had been requested due to concerns that fuel retailers weren’t passing on the historic 5ppl fuel duty cut enacted in March’s Spring Statement. Despite the drop, fuel prices have continued to hit new records since then and only started to drop this week on the back of falling oil prices – but both the AA and the RAC have said they should be falling more and expressed concerns of the fuel trade being reluctant to pass on lower costs.

The CMA said that on the whole the fuel duty cut appears to have been implemented, with the largest fuel retailers doing so immediately and others more gradually.

And despite concerns over fuel retailers profiteering, the CMA data shows that the so-called ‘retailer spread’ (the difference between the wholesale price and the price charged to motorists) has fluctuated over the last year but remained about 10p per litre on average.

Instead, it’s found that the main drivers of increased road fuel prices are the rising cost of crude oil along with a widening gap between the crude oil price and the wholesale price of petrol and diesel – which it calls the ‘refining spread’ and which has tripled in the last year, growing from 10p to nearly 35p per litre.

Sarah Cardell, CMA general counsel, said such a growing gap was a cause for concern.

“We now need to get to the bottom of whether there are legitimate reasons for this and, if not, what action can be taken to address it,” she added.

The CMA did, however, say the gap between wholesale and pump prices is volatile, and that it’s grown larger in recent weeks, which will also be closely monitored in the market study. And it’s echoed the Government’s comments that more action is needed on pump price transparency.

“On the whole the retail market does seem to be competitive, but there are some areas that warrant further investigation. These include finding out whether the disparities in price between urban and rural areas are justified,” added Cardell.

“Pump-price competition in the UK is broken”

The AA welcomed the CMA’s action on further investigation into road fuel pricing, but has refuted the findings on pump pricing.

Jack Cousens, the AA’s head of roads policy, said the problem was not with the gap between the oil price and wholesale price feeding through to the forecourts but the length of time it takes for that wholesale price to be reflected at the pump.

“The fuel trade has no trouble in passing on rising costs to the customer but lags badly in passing on savings. It has been labelled ‘rocket and feather’ pricing, and it exists.”

It’s also got many several examples of where this has happened in the last year.

“Pre-pandemic, UK fuel pricing had settled into a rhythm where significant wholesale price reductions would start to be passed on in a matter of days by ‘cost-cutter’ supermarkets,” continued Cousens. That would then trigger other supermarkets and fuel retailers to start bringing down theirs, or find themselves at a competitive disadvantage.

“That didn’t mean that oil company forecourts couldn’t cut their prices sooner. However, most of them just sat back waiting for the supermarkets to make the first move.

“That trigger appears to have gone, and now there is a need to find another way to re-invigorate pump-price competition.”

The AA also welcomes the CMA’s suggestion of more pump price transparency immediately, which it’s been advocating for years, and said a regulator would be helpful as an independent arbiter of fair prices. The association pointed out that OFGEM, which has electric vehicle charging costs as part of its remit, has already drafted policies for protecting the consumer in the nascent EV space.

But the AA said it would take time to create a road fuel regulator and, given the current cost-of-living crisis, a quicker and more flexible solution is needed.

This includes a revival of George Osborne’s Fuel Price Stabiliser – which lowers fuel duty when oil and commodity fuel prices surge and raises it when they slump. The previous threshold was set at $75 a barrel for oil.

It’s also calling for work on a solution similar to Northern Ireland’s Fuel Price Checker provides that. It is proven, tested and hugely popular, and is ‘oven-ready’ for expansion across the UK at relatively low cost.

The RAC also welcomed the CMA’s report and the commitment to a fuller market review.

Fuel spokesman Simon Williams added: “We are particularly pleased to see that the CMA acknowledges the gap between wholesale and retail prices has been widening in recent weeks. Regardless of the reasons for wholesale prices being what they are we continue to believe there is clear evidence, not least in the last week, that major retailers are incredibly slow to pass on falling wholesale costs, yet quick to pass on rising ones. The idea of allowing drivers to more easily pump prices near them may also prove beneficial.

“The question drivers may have, however, is how long the review will take and – crucially – when they might see a change to what they pay every time they fill up. As each day goes by and the cost-of-living crisis is felt ever more keenly, the need for retailers – especially the largest ones – to reflect wholesale prices fairly becomes ever more urgent. We urge the Government to ensure it’s in a position to scrutinise the relationship between wholesale and retail prices. And where issues are found, it must be able to take action that quickly leads to fairer prices.”

• The CMA’s initial review is available to read in full here. Its full market study, launched today, will examine the road fuel market in more depth, making full use of its compulsory information gathering powers. An interim update will be published in the autumn.