Posts Tagged ‘OFT’

So there we have it. The UK fuel market is a healthy beast, at least according to the OFT report just published following last year’s call for evidence.

To be fair researchers were unlikely ever to have reached any other conclusion.

The big problem is not what is happening in the fuel market, but what is perceived to be going on. It is a sign of the opaque nature of the whole market that the OFT had to delve into it in the first place. Its murky nature has long meant that drivers have been distrustful of it. But today the OFT has identified the real causes of motorists’ misery at the pumps: the chancellor and oil prices, not the machinations of the wholesale market for refined products.

While all the attention has been on the profits being made after petrol and diesel leave the refinery gates, this report reminds us that the biggest price drivers are taxation and the cost of oil. As it stands George Osborne is currently taking 60% of the pump price in fuel duty and VAT, and a barrel of Brent crude retails at the stubbornly high level of $114.

The Foundation would urge garages to provide a breakdown on their till receipts which reveals to drivers exactly how much the Treasury is taking.

The OFT report found “very little evidence” to support the idea of so-called rocket and feather pricing where pump prices rise quickly in line with wholesale price increases but significantly lag any decline in wholesale prices.

The watchdog does however make reference to the high prices charged at motorway service stations. While accepting that these prices might be associated with the higher costs involved in these sorts of operations it wants drivers to be forewarned of the prices before they actually pull off the motorway, possibly by new signs erected by the DfT.

The OFT has also found no evidence that the increasing dominance of supermarket forecourts has been detrimental to drivers. While there have been closures of independent retailers this has not had a negative impact on motorists, in fact the UK has – pre-tax – some of the cheapest road fuel prices in Europe. Research submitted to the OFT by the RAC Foundation showed that 97 per cent of car-owning households were within ten miles of a supermarket forecourt.

None of this will necessarily come as much relief to hard-pressed drivers who are still paying near-record prices for petrol and diesel, but at least it shines a light on where the ‘blame’ for high prices really lies: not, as many of us might have suspected, at the door of the retailers and wholesalers.

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Diesel price – 140.77p (record high 142.17p April 2012)

Petrol price – 132.95 (record high 148.04p April 2012)

Fuel duty and VAT account for about 60% of the pump price of both petrol and diesel.

There are 35 million drivers and 28 million cars in Great Britain. Of the cars, 19 million are petrol and 9 million diesel.

There were 37,000 petrol stations in 1970 but less than 9,000 today.

RAC Foundation work shows that 87% of UK car-owning households are within 5 miles of a supermarket petrol station. 97% of UK car-owning households are within 10 miles of a supermarket petrol station.

According to work done for the RAC Foundation by the consultancy Deloitte, the UK is now a net importer of crude oil and refined diesel. The reasons are two-fold:

1)     The UK’s North Sea oil reserves have shrunk steadily.

2)     Overall, UK refineries are configured to produce more petrol than diesel, however the demand for diesel has grown over time and the cost of ‘retro-fitting’ our refineries would be prohibitively expensive. Therefore we need to import some diesel to meet our needs.

The Deloitte work shows that ten years ago there were nine UK refineries. Today there are seven. Of these seven, all but one have been up for sale in the past three years.

In 2011 the average household expenditure was £484 per week. £65.70 of this was on transport, 14% of the total.

OFT terms of reference:

  • whether reductions in the price of crude oil are being reflected in falling pump prices
  • whether supermarkets’ and major oil companies’ practices may be making it more difficult for independent retailers to compete with them
  • whether there is a lack of competition between fuel retailers in some remote communities in the UK, and
  • whether concerns about price co-ordination and the structure of road fuels markets identified by other national competition authorities are relevant in the UK.

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