OFT decides against fuel price inquiry

Updated on 30 January 2013 | 6 Comments

The OFT has declined to launch a full inquiry into competition into fuel prices, much to the disappointment of campaigners.

The Office of Fair Trading (OFT) has decided against launching a full inquiry into fuel price competition, claiming that the market is “working well”.

The news comes just days after warnings that petrol may be about to rise by 4p per litre.

The steep cost of fuel taxes

Over the last ten years, the price we pay at the pump has rocketed by 79% for petrol and 82% for diesel.

But according to the OFT, the huge price rises have been down to tax rises and the increase in oil prices, rather than money-grabbing tactics from within the fuel industry.

Indeed, the OFT made sure to point out that pre-tax, the UK enjoys some of the cheapest road fuel prices in Europe. It’s only once tax is added that the price we pay becomes one of the most expensive.

The role of supermarkets

One of the biggest developments in the fuel sector in recent years has been the growth of major supermarkets. Indeed, their market share has grown from 29% in 2004 to 39% today. Part of that growth is down to the fact that they have been able to buy wholesale fuel more cheaply, which in turn has made life tough for the smaller, independent outfits.

That’s part of the reason that the number of forecourts has fallen from 10.867 in 2004 to 8,677 in 2012. However, filling your car up in an area around a supermarket does work out cheaper – the OFT’s research found that areas with at least one supermarket in the local area lead to pump prices that were 0.7 pence per litre cheaper for petrol and 0.5 pence per litre cheaper for diesel.

Rural vs urban prices

Prices vary substantially between rural and urban areas. In August last year petrol was around 1.9 pence per litre more expensive in rural areas than urban, with diesel around 1.7 pence per litre more costly.

Part of this is the supermarket factor – there is less competition in rural towns, so prices creep higher. There’s also the added transport costs of getting the fuel to the forecourts in the first place.

Passing on wholesale price drops

Campaigners have long argued that when wholesale prices rise, those increases are immediately passed onto drivers. But when prices fall, drivers have a long wait before they see any benefit. However, the OFT argues that having explained this at both a national and local market level, there is limited evidence to support such claims.

Paying through the nose on the motorway

One area where the OFT is actually going to do something is on motorways, where fuel is “often significantly more expensive”. Last August petrol prices were on average 7.5 pence per litre higher on motorway forecourts, while diesel prices were 8.3 pence per litre more expensive.

So the OFT is asking the Department for Transport to consider introducing new road signs that would display fuel prices for motorway drivers, so that they are at least informed about what they will have to pay.

I’m sure that will make a huge difference.

4p per litre rises

At the start of the week the Petrol Retailers’ Association (PRA) warned that petrol prices may be about to shoot up by 4p per litre, following sharp wholesale price rises. It wanted a full investigation by the OFT as it argued there needs to be greater transparency for wholesale price rises. Read Campaigners call for petrol review as 4p price rises are predicted for more.

The PRA isn’t the only body upset by the OFT’s decision. FairFuelUK has claimed the nation “will feel let down”, while Green Flag has also called it a “huge disappointment”.

So what do you think? Has the OFT made a mistake in giving the fuel market a clean bill of health? Or is the market genuinely working well? Let us know your thoughts in the comment box below.

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