08 July 2022

Soaring fuel prices blamed on rise in oil refining margins

08 July 2022

Growing oil refining margins are one of the main causes of soaring fuel prices, according to the competition regulator.

A review by the Competition and Markets Authority (CMA) found that the increase from the crude oil price when it enters refineries to the wholesale price when it leaves them as petrol or diesel has more than tripled in the last year, from 10p per litre to nearly 35p per litre.

It said that retailers’ margins “remained about 10p per litre on average” over the same period.

The CMA also attributed record fuel prices to an increase in the cost of crude oil.

On the issue of whether the 5p-per-litre reduction in fuel duty introduced in March was passed on to drivers, the regulator said: “On the whole the fuel duty cut appears to have been implemented, with the largest fuel retailers doing so immediately and others more gradually.”

Figures from data firm Experian show the average price of a litre of petrol at UK forecourts on Thursday was 190.8p, with diesel at 198.6p per litre.

That is an increase of around 60p for petrol and 64p for diesel over the past 12 months.

The CMA noted there are “significant differences” in pump prices between many rural and urban areas.

It also set out how an open data scheme could help consumers more easily compare prices at local forecourts.

The regulator has launched a market study that will examine the sector “in more depth”.

CMA general counsel Sarah Cardell said: “The recent rises in pump prices are a major worry for millions of drivers.

“While there is no escaping the global pressures pushing up fuel prices, the growing gap between the oil price and the wholesale price of petrol and diesel is a cause for concern.

On the whole the retail market does seem to be competitive, but there are some areas that warrant further investigation

“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.

“On the whole the retail market does seem to be competitive, but there are some areas that warrant further investigation.”

She said the watchdog will “use our formal legal powers” to investigate pump prices, and “won’t hesitate to take action” if it finds evidence of “collusion or similar wrongdoing”.

A spokesman for UKPIA, a trade association representing the fuel sector, including refineries, said the review was “undertaken at speed” and pledged to continue to “work constructively” with the CMA and the Government “to fully understand the issues which have been identified”.

When fuel duty and tax is excluded, UK petrol and diesel prices have been consistently among the lowest in western Europe

He went on: “As the findings of the review show, the UK typically benefits from a competitive domestic supply chain and prices tend to be most affected by changes in crude oil prices and other supply and demand factors, which have been particularly volatile in 2022.

“Tax is also a significant cost, which accounts for a large proportion of the pump price.

“We would note that, when fuel duty and tax is excluded, UK petrol and diesel prices have been consistently among the lowest in western Europe.”

RAC fuel spokesman Simon Williams said: “We are particularly pleased to see that the CMA acknowledges the gap between wholesale and retail prices has been widening in recent weeks.

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

“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 compare 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.”

Jack Cousens, the AA’s head of roads policy, said pump price competition is “broken” as supermarket fuel retailers are no longer sparking widespread price cuts by being the first retailers to pass on wholesale cost reductions.

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

“The AA therefore welcomes the CMA’s suggestion of more pump price transparency immediately.”

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