The Competition and Markets Authority (CMA) is to launch an indepth investigation into fuel refinery prices after raising concerns about the gap between the price of crude oil when it enters refineries, and the wholesale price when it leaves refineries as petrol or diesel.
The move follows the CMA's review of fuel prices, published last week. The review was commissioned by the government last month in the midst of rapidly spiralling fuel prices and claims that fuel retailers were profiteering and had failed to pass on the government's 5p cut to fuel duty.
Announcing the results of the review the CMA said that its research had shown that fuel retailers were not profiteering, noting that “on the whole the fuel duty cut appears to have been implemented, with the largest fuel retailers doing so immediately and others more gradually.”
However the watchdog found that the main drivers of increased road fuel prices were the rising cost of crude oil and a growing gap between the crude oil price and the wholesale price of petrol and diesel, known as the “refining spread”.
The review found that for diesel, the 5-year average refining spread, from 2016 and 2020, fluctuated between 5p per litre (ppl) and 10ppl but has sharply increased since mid-2021, reaching around 15ppl by the end of the year. It added: "In March 2022, there was a surge of diesel refining spread, with very high volatility since then, moving between 25ppl and 35ppl."
The review also noted that the rise in crude oil prices had been “exacerbated” in the UK by the depreciation of sterling.
The research also looked at the impact of VAT on fuel prices. It found that the cut to fuel duty on 23 March was almost wiped out by the additional VAT paid as a result of higher pump prices. By 27 June, the rise in VAT had offset around 4.8p of the 5p duty cut for petrol, and 3.8p for diesel.
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Announcing the results of the review the CMA said it will now immediately launch an in-depth investigation into road fuel pricing. Issues the investigation will look at include:
• Refining, including why refining spreads are so high and what, if anything, ought to be done to bring them back down
• Wholesaling, including the impact of long-term exclusive supply agreements between independent retailers and wholesalers
• Retailing, including how far local price variation is being driven by weak competition, and whether there has been a softening of competition from supermarkets
Sarah Cardell, the CMA general counsel, said: “The recent rises in pump prices are a major worry for millions of drivers. While there is no escaping the global pressures pushing up fuel prices, the growing gap between the oil price, and the wholesale price of petrol and diesel, is a cause for concern. We now need to get to the bottom of whether there are legitimate reasons for this and, if not, what action can be taken to address it.”
In a letter to Cardell, Kwarteng said on Friday: “The Government is determined do everything possible to ensure that drivers are getting a fair deal for fuel, in the context
of global circumstances leading to record high oil and gas prices. It is right that the UK ensures our markets do not exacerbate global trends and that prices fall when global prices do.
He added: "It is essential that competition works to keep prices down. The government therefore fully supports the CMA in its further work on this important issue, and will await these findings.”