Trade body denies petrol retailers have been profiteering from the falling oil price
18 September 2008

The trade body for filling stations in the UK has denied allegations that petrol retailers have been profiteering from the falling price of oil on international markets.

Although the price of oil has been falling steadily over the last couple of weeks, dipping back below $100/barrel, the retail price of petrol and diesel in the UK has continued to rise, provoking claims that filling stations are maximising profits before cutting their own prices.

“Prices for crude oil and forecourt fuel are obviously linked but they do not move in tandem,” says Ray Holloway of the Petrol Retailers Association, “therefore they do not automatically move up or down at the same time.”

Holloway also claims that international currency markets have been having an impact on UK prices: “all oil products are priced in US Dollars therefore exchange rate variation impacts on the retail pump price. If the exchange rate of 1 August (£1.974 to $1) applied on 12 September (£1.792 to $1) motorists would be paying approximately five pence less for each litre.”

Holloway added that he believes the price of fuel will decline during the Autumn, and that falls should be evident on forecourts within the next ten days.

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Comments
15

19 September 2008

Perhaps the Petrol Retailers Assoc can explain why the retail prices rise overnight (or quicker) when the cost of a barrel of oil goes up, but takes weeks to go down when the cost of the barrel falls ? I live in the Aylesbury area of Buckinghamshire and the price of petrol has been consistently higher here than in many surrounding areas such as High Wycombe or Watford.


Enjoying a Fabia VRs - affordable performance

19 September 2008

Yep, petrol station owners are all millionaires - that is why the number of forecourts in the UK is at its lowest since the 1920's. Forecourts in the UK are a mixture of Company-owned sites and in independent franchise style operations - a typical major brand indie makes barely 3pp/litre margin on fuel, but the fuel is a unique way to get customers into the convenience store where you can spend your money on high margin products like sandwiches, coffee, alcohol, cigarettes, etc. Most cannot survive or even break even on fuel sales alone. This is why the vast majority of independent sites (which make up about 70% of Forecourts in the UK) are dominated by convenience-store based sites. You can have two independent forecourts, same brand, within 50 feet of each other which might be on completely different purchase deals for fuel from their suppliers, meaning one makes double the margin of the other and can adjust his prices appropriately. Deals are typically 5 years and someone who signed a deal with, say, Shell 5yrs ago will likely be purchasing fuel at a far lower price than the next forecourt down the road who has just resigned for another 5 years at a higher purchase price.

19 September 2008

It's the massive fluctuation in fuel prices that I don' understand. I can buy a loaf of bread and 4 pintsof milk in my Local tesco in Watford for £1.20, then drive to wokingham and buy the same goods for an identical £1.20. It's the same with their tins of beans, leather jackets and plasma televisions.

So why is it that at the same branch of tesco in Watford petrol is 109.9p a litre but in Wokingham it's 113.9 a litre?

19 September 2008

Tesco can charge whatever they want, they can subsidize it massively because they don't care about fuel margins - cheap fuel is just a guaranteed front page headline when times are economically tough. I think Tesco and Sainsburys charge regionally based on local competition, but during a price war all the supermarkets tend to drop to the same level. Morrissons just cut their fuel by 3pp/litre and would have you believe it is due to the drop in crude oil prices. It isn't, its just that they have the ability to do this and make next to no margin. Plus the fact that they are buying vast quantities on ridiculously good terms, quantity that they can turn over very quickly. Now Sainsburys and others will likely follow suit. Unfortunately your local independent - which could be branded BP, Shell, JET, Pace, Total, Harvest Energy, Texaco, etc etc - can't afford to drop 3ppl and make negative margin, but nevertheless will bear the brunt of customer criticism and calls of 'profiteering' which are just total boll*cks. A Tesco site typically has such a large volume that they are taking a new load of fuel every day and clearing out all of their stocks of fuel. An independent site will be taking deliveries once or twice per week and taking more time to sell that delivery, and the nature of their agreements, which are usually based on a premium paid over the market price for petrol and diesel, means that they could be in a position where they bought fuel last week at 4ppl higher than Tesco are currently paying for their supplies. This means that the indie is ****ed because they have to make a margin on fuel purchased at a wholesale price that is probably higher than Tesco's RETAIL price, let alone the price that Tesco paid for their fuel. The problem is that the consumer tends to view all forecourts of a particular brand, say BP, as one giant entity, but the vast majority of them are individual sites run by the bloke who is often serving you behind the counter or working in the back office. So when everyone rightly complains about BP making shedloads of money, they associate that with the independent BP retailer who is in a totally different position and only has permission to use BP's brands and sell their fuels. Unfortunately petrol Forecourts in the UK are not run like a MacDonalds, where everyone has the ability to make the same margin and sell at the same price. The sale price is determined by hundreds of factors - for example a smallish Forecourt will pay much higher credit/debit card processing fees which eat up margin, and will pay even higher fees to the all important fuel card providers such as PHH Arval/Allstar. If they are not situated close to a refinery outlet (Coryton, Grangemouth, etc) they will pay a substantial surcharge for delivery (and we all know how much tanker drivers are paid after the recent strike). The price they pay for their fuel is dependent on the volume they are selling, ie lower volume means higher prices paid for fuel. And so on and so on. The exception are what is known as 'company owned sites'. Unfortunately it is hard to distinguish one of these from an indie site, but basically this is a site owned by the supplier and the staff therefore all work directly for BP/Shell/Esso/whoever. There is no franchise involved and pricing is determined by the fuel supplier as the forecourt is a part of their company. There are fewer of these sites in the UK, but often companies like Shell's company owned sites will go 'suicidal' on their pricing in order to compete with the supermarkets, often to the detriment of independent operators of the same brand who cannot compete on price and will lose volume because of it.

19 September 2008

I am prepared to accept that independent retailers probably don't make that much money on fuel sales. What I do find hard to accept is the likes of Shell and BP announcing billions of dollars of profits while those that need to fill up their cars to get to work and earn a modest wage have to bear the brunt.

The last time oil was below $100 per barrel the retail prices of petrol and diesel were nowhere near what they are now. True, there has been a weakening of the £ against the $ but I'd be surprised if it absorbs all the benefit from a 30 odd percent drop in oil prices. And why is diesel all of a sudden almost 10% more expensive than unleaded?

It's no more than legalised extortion.

19 September 2008

The point here is that there is a difference between crude oil and the refined product that goes into your tank, and what is available in the market. There is a massive shortage of diesel in the South East of England and this isn't going away in a hurry. Plus, UK-wide, refineries are not set up for the petrol-diesel ration that we have in the current market, they are set up for a petrol dominated car market. A lot of what you see diesel-wise in the South East is Thames-supplied (shipped in, often from Russia) not from UK refineries. It doesn't matter what the price of crude is, demand for diesel is greater than it ever has been and that is causing the differential to grow. This differential will not change significantly. Flag this post and come back to it in 6 months' time and I will guarantee you that the differential will be similar to what it is today, or greater - possibly more likely by the price of unleaded falling rather than the price of diesel rising. Yesterday's differential was around 10p on the wholesale market but this won't instantly translate into forecourt retail prices because this is the level of the trading market yesterday, most forecourts won't start buying it at that price until next week, depending on what deal they have.

19 September 2008

this is a difficult one.

on the one hand i think fuel should cost the same, from the same brand, anywhere in the country. it shouldn't be cheaper in one town than the next, nor cheaper in the city than in more remote areas. fuel suppliers should factor in transport costs, etc., and normalise the price they sell the fuel at across the board ... so although it costs more to get fuel to the a remote area (as the tanker has to travel further) the remote dwellers shouldn't be penalised for this.

on the other hand, i do understand that if you buy more fuel you should be able to get it at a cheaper rate, on economy of scale ... but it does skew things towards the bulk buyers like supermarkets, rather than independents.

perhaps the government should step in and say that suppliers must provide fuel at the same price to all their customers (inclusive of all costs), regardless of where they are, or how much they purchase. that's not to say bp must charge the same as shell, but that bp must charge the same price to a supermarket, a city forecourt, or a rural one.

pie in the sky stuff of course.

GD

19 September 2008

The case for the defence - I just don't believe it. Crude prices have fallen - FACT.

The independant dealer may not have much of a margin to play with. My quarrel is not with him it is with the oil exractors and refiners. The major oil companies, that is. It is they who must pass on the crude price falls right down the chain.

GB

20 September 2008

There is a country garage which I use for the servicing and maintenance of my horse lorry which sells fuel. They are totally independent and shop around when buying fuel for their pumps.

The price at the pump depends what they manage to negotiate from whichever oil company they buy from when their tanks are empty.

The global price may have gone down but the independent may not have to buy fuel yet so they have to keep the price the same or they will lose out.

They will then change the price when they have to refill their tanks, which may be lower or higher depending on the price they get when they order.

20 September 2008

This is what's known as a 'white pole' site. Generally lower volume with irregular deliveries but more often than not they tend to buy at higher prices; the lower volumes they pump meaning they don't have enough litre-age to attract a branded supplier. The benefit is that if they have fuel lying around in the tanks that was bought weeks ago at a lowish price, but hasn'y yet been sold, they often find themselves in a competitive position if fuel price has risen since they took their last delivery. On the downside, when there are fuel shortages white pole sites are the first to be denied supplies as they have no contract. Ultimately, the only way petrol prices will really come down is if the suppliers themselves cut costs, not the retailer.

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