The full text of the urgent review, which was handed to the UK government yesterday (7 July) after being requested by Business Secretary Kwasi Kwarteng last month, has now been made public.
The study concludes that:
The cost of crude oil is rising, and the so-called “refining spread,” or the difference between the wholesale price of gasoline and diesel and the price of crude oil, is widening.
The “refining spread,” which increased from 10p to almost 35p per litre in the previous year, tripled.
The so-called “retailer spread” (the difference between the wholesale price and the price paid by motorists) fluctuated but stayed at roughly 10p per litre on average during the same time period.
Overall, it appears that the reduced fuel duty has been put into effect, with some fuel merchants acting promptly and others more gradually.
Rural and urban locations have substantial pricing discrepancies.
The Competition and Markets Authority (CMA) has today begun a market study that will examine the road gasoline market in further detail and make full use of its mandatory information gathering capabilities in light of some of the issues discovered and the urgency of the situation. In the autumn, an interim update will be released.
The UK government has requested advice from the CMA on potential actions “to strengthen the transparency that consumers have over retail prices.”
In addition to providing customers with easier access to and comparison of local pump prices, the analysis outlines new business prospects for tech firms.
There might also be a case for disclosing additional details regarding gas station costs on highways.
General Counsel for the CMA, Sarah Cardell, stated:
Millions of drivers are quite concerned about the recent increases in gas prices.
While it is impossible to escape the global influences driving up fuel costs, the widening gap between the price of crude and the wholesale cost of gasoline and diesel is worrying.
We must now determine whether there are valid explanations for this and, if not, what can be done to remedy it.
The retail sector does appear to be competitive overall, but there are several areas that demand more research.
Among them is determining if price differences between urban and rural locations are justified.
The CMA has high priority for this area of activity, and we will assist if we can.
We are starting a market analysis right away that will make use of our official legal authority to look into this issue further.
We won’t think twice to act if evidence of collusion or other malfeasance materializes.
What causes rising gas prices?
The following have been the main causes of rising pump prices over the past 12 months:
The cost of crude oil has risen steadily since March 2022, when it reached record highs in sterling.
Road fuel prices have increased by around a third in dollar terms over the past year, and a further 12 percent has been added by the collapse in the value of the pound sterling during that time (7p per litre).
A widening discrepancy (the “refining spread”) between the cost of crude oil entering refineries and the wholesale cost of gasoline and diesel leaving them just over 40% of the increase in the price of road fuel is attributable to this (24p per litre).
The refining spread appears to have been impacted by both rising demand during COVID-19 recovery and decreases in supply, particularly as a result of the Russian invasion of Ukraine and the suspension of refining capacity during COVID-19.
Our analysis reveals that over the course of a year, the difference between wholesale prices and retail prices (the “retailer spread”) has not been a substantial contribution to the total increase in pump costs, despite fears from some about fuel merchants benefitting from the current situation.
The store spread fluctuates, and the CMA is aware that it has gotten bigger recently. The CMA will keep a careful eye on this as it moves the market research further.
The CMA’s market assessment will include more analysis of the relationship between wholesale and retail prices, particularly how changes in wholesale prices are mirrored at the pump.
A market analysis entails what?
Market studies give the CMA the ability to investigate whole markets using its mandatory information-gathering authority and can lead to recommendations to the government or a comprehensive market investigation reference.