OFT publish report on road fuel sector


The Office of Fair Trading published the findings of its Call for Information on the road fuel market today (30th January) and says competition is working well in the UK – however there may be issues at local levels.

The call for information, which was launched in September last year, was to determine if there are competition problems within the market.

The report states that there are some areas of the UK where wholesale competition is weaker – but details: “During the Call For Information, the OFT did not received sufficient evidence of a limited choice of wholesalers for independent retailers to justify carrying out a market study, nor have we received any individual submission that would justify opening an investigation.”

However the Government watchdog announced recently that it has launched a formal investigation in GB Oils (which also operate under the name Scottish Fuels) looking into contractual arrangements for the wholesale supply of fuel in the Western Isles.

The investigation is under Chapter II of the Competition Act 1998 and relates to a suspected exclusionary abuse of a dominant position in the relevant market.

Clive Maxwell, OFT chief Executive explained: “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.”

He continued: “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.”

The OFT did see differences between urban and rural areas in terms of prices but say there are a number of factors accounting for these including lower throughputs per forecourt, fewer competitors (including supermarkets) within a local area, and higher transport costs for getting fuel to rural forecourts.

It also looked at ‘Rocket and Feather’ pricing - the widely held perception that pump prices rise quickly when the wholesale price goes up but falls more slowly when it drops.

The report states: “We have not found compelling evidence of rocket and feather pricing in the UK road fuels sector in our econometric analysis of national, local and site-level data.

“This finding is consistent with evidence that we gathered from market participants about the way that retailers buy fuel and set their prices, with different types of retailers purchasing fuel on different time lags and a number of retailers aiming to be, or match, the cheapest site in their local area.

“These features suggest that rocket and feather pricing is unlikely to occur.”

It continued: “We recognise that there is a strong perception among consumers and motorists’ groups that rocket and feather pricing exists. However, the evidence we received was largely anecdotal, especially when compared to our own econometric analysis of the relevant price data.

“There is further work that we could have undertaken to develop our econometric analysis, but we did not consider that such work was warranted, given that the evidence we have gathered during the Call for Information suggests that overall competition in the UK road fuel sector appears to be working reasonably effectively.”