Changes in fuel retail pricing require further investigation: CMA

The Competition and Markets Authority (CMA) has on Tuesday published ‘emerging analysis’ of the scale of rising fuel prices and the underlying causes from its Road Fuel Market Study.

The analysis from the shows that 2022 is the most volatile year for fuel prices since reliable records began. Prices rose by around 50p a litre from January to July, the largest leap in fuel prices ever recorded in one year, before falling by 31p for petrol and 14p for diesel since.

The CMA has also found that prices vary widely between local areas.

“We looked into what may be causing high prices in certain areas and found that prices are likely to be higher at petrol stations where there are few (or no) competitors nearby – and particularly where there is no local supermarket petrol station. We will investigate this further,” the regulator said.

Annual retailer fuel margins are increasing, but the causes are not yet clear, the CMA said.

Between 2017 and 2021, the difference between the price retailers paid for fuel and the pump price (the fuel margin) rose by the equivalent of 2-3p a litre on diesel and 3-4p a litre on petrol.

Noting that this could be accounted for by other cost rises for retailers or weaker competition on fuel, the regulator said this will also be investigated.

The study found that the gap between diesel and petrol prices has become larger than ever reliably recorded. Diesel now costs 24p more per litre than petrol, largely due to Western Europe’s reliance on imports of diesel, but not petrol, from Russia.

The analysis found no evidence of so-called “rocket and feather” pricing, which refers to pricing phenomenon occurring when downstream prices react in a different manner to upstream price changes, in the years before 2022.

But the regulator said it found some evidence of the behaviour emerging this year, particularly for diesel and will investigate further.

The analysis comes as part of an initial update on the market study launched in July, which followed on from an urgent review that had been commissioned by the government to look, in particular, at whether the cut in fuel duty, announced in March 2022, had been passed on to consumers.

Unlike the urgent review in July, a market study allows the CMA to use compulsory information-gathering powers to probe the entire market.

Since launching the study, the CMA said it has secured information, including company level financial data, from retailers, refiners and wholesalers and conducted in-depth analysis of fuel prices over the last five years, rather than just the one year covered by the urgent review.

“It has been a terrible year for drivers, with filling up a vehicle now a moment of dread for many. 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.” Sarah Cardell, interim chief executive at the CMA, said:

“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 CMA is now inviting views and comments on the emerging evidence. A further update, including options for possible next steps, will be published in the Spring.