Do the OFT’s petrol price findings spark your ignition?

by , Cars Writer Transport & Travel 30 January 2013
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So the Office of Fair Trading thinks that the market for petrol and diesel in the UK is ‘working well’. Do the OFT’s findings mirror your experience of filling up your car?

A petrol nozzle filling up a car

According to its new report, the OFT concludes that very little action is required to change the way the current UK fuel market works.

Independent forecourts might disagree. They’ve been in decline for years, with more shutting every month, and it was complaints by independent retailers about oil companies and supermarkets gaining an unfair advantage that led to this OFT report.

Is the UK the best in Europe?

However, after a four-month investigation, the regulator has found no evidence of market manipulation, concluding that ‘at a national level, competition is working well in the UK road fuel sector’.

Before tax, the OFT says that fuel prices in the UK are among the lowest in Europe. Its analysis suggests that pump price rises over the last decade or so have largely been down to increases in tax and the cost of crude oil.

It also says that forecourt prices don’t appear to rise unduly quickly when crude oil prices peak, and nor do they take too long to fall back when crude costs tumble.

Motorway pricing info needed

However, one problem area that the OFT has identified is motorway service stations. As most of us are all too well aware, motorway service areas have significantly higher fuel prices than other outlets. For instance, the OFT found in August 2012 that prices were on average 7.5p per litre higher for petrol and 8.3p more for diesel than regular forecourts.

In this case, the OFT’s concerns centre on motorists being unable to see these prices until after they’ve left the motorway. So it’s asked the Department for Transport to introduce new motorway road signs to display prices.

So what’s your experience of UK forecourts? Would you welcome more information about pricing before turning off the motorway?

22 comments

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william

I wonder which market for petrol and diesel the OFT actually looked at. When the oil price rises, prices at the pumps seem to rise regardless of the cost of the stuff in the underground storage tanks which was probably bought at a lower price. Surely you should expect any price rise to come in force after the garage has taken delivery of a new load (at the new price).

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John Ward

The big problem with petrol retailing is the dearth of filling stations in rural areas. Trunk roads seem to have them every ten miles or so but non-trunk A roads seem to have 15 mile gaps between stations [and they're usually on one side of the road only], and minor roads have lost them altogether. A lengthy return journey in East Anglia requires quite a bit of planning and knowledge, otherwise you have to top up where you can at whatever price prevails.

I’m not sure about the DfT putting up fuel price signs on Motorways in advance of service stations unless they also give the prices for the following one [and what about where Motorways diverge?] Unless the DfT signs are updated automatically through a link to the service station I can see things going wrong and drivers getting false information. In general I am opposed to more signs on our Motorways and especially signs with illuminated graphics – they would have to be at least as big as the huge cantilevered variable message signs that have appeared over the last few years otherwise they would not be readable at cruising speed and could lead to sudden decelerations or lane changes. No doubt the DfT will kick this idea down the embankment where it belongs.

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Chris Gloucester

The problem is not with the price of a litre of fuel per say it is the 80p per litre tax that is added. How can it possibly be right for tax to more than double the price we pay? To even investigate fuel wholesalers and retailers is a complete smokescreen the real villain is the tax man or more precisely the Government muppet who decides the level of fuel tax. Investigate them.

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Malcolm R

There is something of a parallel discussion on this topic going on at https://conversation.which.co.uk/transport-travel/fuel-petrol-prices-apps-petrolprices-pro-fuel-smart/#comments. Perhaps the two should merge?

Hi Malcolm, that Convo is about smartphone fuel apps – if you’d like to talk about the OFT report please do so here. We don’t merge Conversations – that’s up to you :)

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Malcolm R

Understood Patrick.
The latest OFT report says there is fair competition in fuel pricing. But they also obscure the issue by talking about pre-tax and pre-duty prices being cheaper than in parts of Europe – which is irrelevant to the UK competition issue. Tax is a separate issue – here the OFT should be concerned with the basic product cost and how it is passed on.
Many challenge their findings – I don’t know if they published a graph showing how retail price changes follow wholesale price changes but that would help deal with the view that prices rise quickly but fall slowly.

However, since many of us can buy fuel from a number of outlets – including supermarkets – if we feel strongly enough that certain suppliers are not being fair then we can vote with out feet (or wheels) and boycott them. I suspect if enough did so we would see a change in attitude. But would enough bother to do that? Could Which help by collating information on lower-priced outlets through something like Which Local for example with information supplied from members?

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John Ward

Where there is a choice of outlets I suspect there is a reasonable amount of price competition. For many of us, however, there is often only one petrol station on the regular route and making a detour to save a few decimal points per litre cancels out the savings. I have noticed that the greater the distance from an alternative supplier the higher the fuel price tends to be.

I think there are websites that show the prices at filling stations by postcode or district. I haven’t looked at them myself so cannot say how accurate or reliable they are, or indeed whether they indicate any effective competition through worthwhile price differences.

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wavechange

The less signs to distract motorists on motorways the better, though this would be better than having drivers playing with apps on their phones to check prices.

I assume that operators of motorway service areas operate under some rules, since they all provide free toilets and parking. Perhaps this could be extended to fix fuel prices at service areas across the country.

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John Ward

I believe there are quite a lot of rules and restrictions applying to Motorway service stations, including a requirement to provide a supply of all grades of road fuel all round the clock, to provide somewhere people can wash and refresh themselves, and where they can rest outside the vehicle. This is all in the price of fuel, as is the rent for the concession which reflects the moderation of competition that applies on Motorways. The operators also know that the charge for having fuel brought to the vehicle in the event of the tank emptying is prohibitive, so they can exploit that “market opportunity”.

Overall i would say that our Motorway service stations have performed well over the years. i cannot remember any times when they had run out of any particular fuel so they must carry above-normal stock levels [which William will no doubt remind us was sourced at a much lower rate than today's wholesale price!. It's the replacement cost that governs the retail price, of course, but since tax and duty make up such a high percentage of the selling price - and they are defrayed at the prevailing rate at the time of sale - the difference between the historic and current wholesale price of stored fuel is probably the least of our worries].

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Bennybongo

I doubt this OFT organisation really had the capability to truly investigate the real “transfer pricings” between real crude input costs, costs of crude transportation to European refining centres, costs of refining, costs of transport of the finished product into various Marketing Organisations and the retail pricing, all of course excluding taxes, excise duties etc. Did it look into “hidden” discounting/special pricing deals between these parties in the overall transaction?

Prices have been fixed around the world for the past 150 odd years through various “controllers”. I don’t think this review really went into how prices are currently influenced/controlled by speculators with partial OPEC involvement nor perhaps did it took in all the International Oil Company acquiescence into unreasonable price changes driven by these speculators where it is inevitably in the IOC’s commercial interest.

I suspect this OFT inquiry was yet another waste of UK Tax payers money……

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AQ

I have no reason to disbelieve the findings in the OFT report. Where there are several fuel outlets in competition, the prices are a little lower than in those areas where competition is sparse or non-existant – and of course motorway service areas are still the dearest, perhaps because of the very high site costs. The real issue with fuel cost is the scandalous amount pocketed by HM Government in fuel duty and VAT. Remember also that the VAT is applied to the cost after the duty has been added, so we are being charged VAT on both the product and the duty, so even the tax is taxed.

The problem is that only a small proportion of these and other road use revenues are actually spent on our roads. Most is used for other spending, notably benefits, pensions etc etc. These revenues are simply taxes which are poured into the Treasury’s Consolidated Fund along with income tax, national insurance, other VAT, stamp duty and all other taxes. They are not ring-fenced and are used to finance all manner of government spending.

In the UK we pay amongst the highest amounts of combined taxes in order to use our roads – we are an easy target and unavoidably, we pay at the pumps. So whilst we all, rightly, complain about fuel prices, it is primarily HM Government to blame, even if fuel companies (like all others) put prices up more quickly than they reduce them.

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Malcolm R

AG, one of the OFT’s remits, presdumably, was to look at whether fuel prices responded as quickly when wholesale costs went down as when they went up. I don’t think this has been addressed properly and it is important to ensure we are not being short-changed. I would like to see their information as to what they found – maybe it is on line?

The tax issue is quite separate. Whilst we would all like to see less tax, it has to come from somewhere. If you reduce fuel duty, another area will be more heavily taxed – it will just move the complaints somewhere else.

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Malcolm R

Those who are interested can see the full OFT report here http://www.oft.gov.uk/shared_oft/markets-work/oft1475.pdf . There is a section on “rocket and feather” price changes that concludes there is no significant evidence that prices rise more quickly and fall more slowly than wholesale price changes – as we have been told . It seems to me we have to assume that the data has been diligently collected and interpreted. If we don’t agree with it, then we must provide evidence to contradict it. The AA seem unhappy and presumably have evidence they can put forward?

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william

“Lies, damned lies, and statistics” springs to mind. I rather see their raw data and number crunch it myself. So I will have to just keep repeating Lies, damned lies, and statistics to myself.

But thank you for supplying the report.

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Rupert

Can someone answer this question please…I have asked it before but never get any response….I am led to believe that it is cheaper to refine diesel than petrol….If that is so why is diesel so much dearer than petrol, like 5p a litre….. Travelling in Spain, or France,, fuel is substiantionally cheaper than in the uk, also diesel is 2/3 p a litre cheaper than petrol. So are we being ripped off or not.

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Malcolm R

I have always been lead to believe that as heating oil is akin to diesel, the winter sees a large increase in demand with upward pressure on prices. Also, whilst “old” diesel might have been cheaper to refine, the introduction of low sulphur requirements adds to cost.

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Mike

Of course we are being ripped off. Diesel is cheaper to produce as it comes off the ‘cracker’ before gasoline. Diesel only rose in price when the Government sensed diesel engined cars started to outsell petrol engined cars. Beware buying an LPG converted car! If the same happens again make no mistake LPG will suddenly be taxed out of all proportion. People must realise that our wasteful Government must be paid for in whatever way is most convenient. So long as money is squandered abroad on questionable projects we will pay. It seems to me neither Labour or the Conservatives have a sensible plan to reduce fuel duty or the inclination to do so. Ask your MP!

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Malcolm R

William, hence the suggestion that evidence to the contrary, if it exists, is put forward. Just because the outcome is not what we might have liked does not mean it is based on untruth. Challenge it with fact.

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RichardA

What I find galling is the fact that a supermarket can have a 5p difference in price in a 30 mile radius! One fails to understand how regional price differences can be so dramatic, regardless of site rental and other costs. The offers of money off per litre given by supermarkets leads you to believe that the profit in petrol/diesel is higher than petrol retailers would have you believe. The OFT report is not very convincing!

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AQ

Heating fuel ( gas oil) and diesel are essentially the same and are less refined than petrol, so are cheaper to produce, though pre-tax prices are subject to seasonal fluctuations because of changes in demand. Within the rest of Europe, at least, diesel prices at the pumps are cheaper than petrol, reflecting the lower buying in cost before taxes are added. In the UK, however, the government of the day, many years ago, decided to increase the duty on diesel to match its final price to that of petrol. This duty surcharge has remained ever since, but because the wholesale cost of diesel has risen more than petrol, its final price has been a little higher for some years now.

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Rupert

Just had notification of fuel prices in my area, and guess what the differential between unleaded and diesel has increased by another 2p which now makes diesel 8p / litre more than unleaded…Where will it stop?.

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Kremmen

During the investigation pump prices have remained fairly static. Within a week of the announcement, in my area, they have suddenly jumped by 4p a litre !!!!

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