Should petrol pump prices be regulated?

I got some petrol at Sainsbury’s, Roundswell today, as I was passing, and it is usually a lot cheaper than in Bude.

Recently, there was a petition to try to regulate prices at the pumps because of the wide variation based on location.

The government has responded thus, probably as expected. Certainly, when crude oil prices go up, the pumps respond almost immediately; when they drop, the response tends to be slower, but overall the government thinks things are working well. However, what happens when there is little competition to ‘self-regulate’?

Government monitors fuel prices and both rises and falls in crude oil price reach the pumps within 7 weeks. A competitive market is the best way to keep prices low; a new regulator is not necessary.

The Government believes that it is essential that consumers get a fair deal and that any fall in the price of oil should be passed through to lower retail prices without unnecessary delay. This can most effectively be achieved through an open and competitive market, which drives prices down. We will therefore continue to make it clear to industry that we expect that savings resulting from lower oil prices are passed on to customers.

This framework delivers some of the lowest pre-tax prices in Europe for both petrol and diesel for the UK. Government works closely with all stakeholders to ensure that the domestic market remains highly competitive – addressing regulatory burdens, ensuring access to fuels from around the world as well as domestic production. This includes ensuring that UK refineries have open access to a range of crudes from the international markets as well as those produced by our policy of maximising economic recovery from the UK Continental Shelf.

The Department for Business, Energy and Industrial Strategy (BEIS) monitors and publishes weekly national average pump prices which can be accessed online:

Movements in pump prices are primarily driven by crude oil prices; though are also influenced by a range of other factors including refining capacity, stock levels, biofuels costs, distribution costs and retail margins. The sterling-dollar exchange rate also has an impact. Crude oil and oil products are traded in US dollars, and so when the value of pound sterling decreases against the dollar, oil becomes more expensive for UK consumers.

Analysis by BEIS suggests that, on average, crude price changes take up to 6-7 weeks to fully show in the price at the pump. This time represents commercial arrangements in the supply chain and the range of times it takes for crude oil to be shipped and refined and the resulting fuel to be delivered to filling stations. Therefore, the fuel prices at the pump on a given day will be influenced rather little (if at all) by the crude price on that day but rather they will be driven by the crude prices over the previous few weeks.

BEIS analysis showed no evidence to suggest that, for given changes in crude oil prices, retail prices rise faster than they fall. Therefore, we are confident that the current market-based framework is the most effective to keep road fuel prices as low as possible.

In January 2013, the Office for Fair Trading (OFT) published the results of a Call for Information to investigate whether competition problems existed in the road fuels market. Overall, based on the evidence collected, the OFT reported it appears that competition in the UK road fuels sector is working well.

From this analysis we do not believe that establishing a new regulator, with the associated costs of establishing such a body, would be justified. The sector is subject to the normal competition and consumer protection law.

The government understands that road fuel prices are an important component of UK household and business expenditures and we constantly monitor retail and wholesale fuel markets to ensure that they work for everyone. This is why, at Budget last year, the Government announced that fuel duty will be frozen for the eighth successive year. The Government has frozen fuel duty in every year from 2011 to lessen the impact of high fuel prices on households and business costs.

The retail fuels market is subject to UK competition law under the Competition and Markets Authority (CMA). If people have evidence of anti-competitive practices in the fuel supply sector, they should pass this to the CMA.

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