The UK’s Competition and Markets Authority (CMA) has confirmed it will investigate further after finding evidence that fuel retailers have increased their profit margins on petrol and diesel. The non-ministerial government organisation said it would have to establish whether the issue was down to “competition problems”.
For a number of years, fuel retailers have been accused of so-called ‘rocket-and-feather’ fuel pricing, which sees prices increase rapidly in line with rising oil prices, but fall more slowly when the oil price drops. As a result, consumers have to pay over the odds for fuel when the wholesale price of petrol and diesel – the price at which retailers buy the fuel – is falling.
Back in March, the CMA was tasked with investigating the fuel retailers to find out whether such practices were commonplace, as well as looking into the large discrepancies in prices between different areas. The organisation has now published what it calls “emerging analysis” of fuel price hikes and the “underlying causes”, outlining where it needs to investigate further.
According to the CMA, 2022 has been the “volatile year for fuel prices on record”, with prices up by around 50p per litre from January to July, before falling again in the second half of the year. The data shows diesel prices remain high, though, with diesel now costing 24p per litre more than petrol – something the CMA puts down to Western Europe’s previous reliance on imports of diesel from Russia.
However, the CMA also found evidence that fuel retailers may be cashing in on the fuel price rises. The analysis concluded that retailers’ annual fuel margins are increasing, with profits on fuel up by 2-3p per litre for diesel and 3-4p per litre on petrol. The CMA says it is not yet clear why that’s the case, and the organisation has pledged to investigate whether that increase is down to other cost rises for retailers or weaker competition on fuel.
The CMA also confirmed it had found evidence of ‘rocket-and-feather’ pricing in 2022, particularly for diesel, but said that could be driven by “the extreme volatility of prices and supply”. To the astonishment of some – particularly the RAC, which has campaigned against the practice for years – the study found no evidence of rocket-and-feather pricing before 2022.
That said, the CMA has confirmed drivers face a postcode lottery when it comes to fuel prices, with prices varying between local areas and particularly high prices often found at petrol stations where there are few competitors nearby. Apparently, the issue is particularly evident when there is no local supermarket fuel station.
“It has been a terrible year for drivers, with filling up a vehicle now a moment of dread for many,” said the CMA’s interim chief executive Sarah Cardell. “The disruption of imports from Russia means that diesel drivers, in particular, are paying a substantial premium because of the invasion of Ukraine. A weaker pound is contributing to higher prices across the board too.
“There are no easy answers to this. The question for the CMA is whether a lack of effective competition within the UK is making things worse. Although it is only a small proportion of the overall price, the increase in margins for many fuel retailers over the last few years is something we need to investigate further. The key thing we need to establish next is whether this development is down to competition problems or not.”
The RAC expressed its surprise at the findings, claiming it has “clear evidence” of rocket-and-feather pricing in previous years.
“While it’s encouraging the CMA has found evidence of ‘rocket and feather’ pricing taking place this year,” said RAC fuel spokesperson Simon Williams, “we believe there was clear evidence of it happening this time last year and in 2018 and 2019. Volatility has unquestionably been an issue in fuel pricing since Russia invaded Ukraine but when wholesale prices trend down for weeks at a time drivers should see pump prices do the same at a similar rate – unfortunately our data shows that this is not often the case. What’s happening now – as it was last December – is a massive downward shift in the price of wholesale fuel with a slow dropping of forecourt prices. Consequently, drivers are set for a more expensive time on the roads this Christmas than they should be.”
The Petrol Retailers Association (PRA), which represents petrol stations, welcomed the CMA’s report and said it “exonerated” retailers from government accusations of price gouging (the act of increasing profits due to a lack of competition).
“We were entirely transparent and assisted the CMA with their investigation throughout, and were pleased when they exonerated us from the unfounded accusations of price gouging,” said PRA executive director Gordon Balmer. “The majority of our members are small operators that have worked hard to serve their communities in these unprecedented times. It was irresponsible of the government to baselessly accuse them of ripping off customers, and we are glad the matter has been resolved. We will continue to work with the CMA and provide any evidence they may need concerning their investigation.”