Petrol pump competition is fair, OFT decides

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LONDON (ShareCast) - Competition at petrol stations is fair, the Office of Fair Trading (OFT) announced Wednesday.

In an call for information launched in September last year, the OFT determined that competition at the pump is "working well", and blamed the increases in petrol and diesel over the past 10 years on rising crude oil costs, as well as tax hikes.

The OFT found that, pre-tax, the UK has some of the cheapest road fuel prices in Europe. In the 10 years between 2003 and 2012 pump prices increased from 76p per litre (pl) to 136p pl for petrol, and from 78p pl to 142p pl for diesel, caused largely by an increase of nearly 24p pl in tax and duty and 33p pl in the cost of crude oil.

OFT Chief acknowledges deep mistrust surrounding pump prices

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."

Competition between the 'Big Four' and other competitors

The group noted that a key feature of the road fuels sector over the past decade has been the growing influence of the big four supermarkets.

Tesco (Other OTC: TSCDY - news) , Sainsbury (LSE: SBRY.L - news) , Morrison and Asda collectively increased their share of road fuel sold in the UK from 29% in 2004 to 39% in 2012.

The organisation said: "The supermarkets' high throughput per forecourt and greater buying power has allowed them to sell fuel more cheaply than other competitors. In August 2012, for example, the average price of petrol at supermarkets was 2.0p pl cheaper than the average at oil company owned sites and 4.3p pl cheaper than the average charged by independent dealers."

The OFT also acknowledged that many independent dealers have found it difficult to compete in this sector, with a significant number exiting the market, with the over number of UK forecourts down from 10,867 in 2004 to 8,677 in 2012.

However, it noted that where forecourts closed between November (Xetra: A0Z24E - news) 2011 and August 2012 retail competition still appears to be strong.

Higher costs at service stations give cause for concern

There was a significant difference in the cost of fuel at motorway stations, the OFT found, and said that while the increase in prices may be explained to some extent by the higher costs associated with running motorway forecourts, it is concerned that drivers are not able to view prices until they have pulled into the service station.

As a result, it has now asked the Department for Transport to consider introducing new road signs that would display service station petrol and diesel prices for motorway drivers.