Falling fuel prices: AA calls for greater transparency

Average UK petrol prices have fallen by the equivalent of £2.37 a tank in the past month, but forecourts have been the sole targets of criticism for not reflecting the recent oil price slump. This month’s AA Fuel Price Report shows that they share only part of the blame.

The oil price has fallen more than 11% in the past six weeks, down from $90 a barrel to below $80. That has brought the wholesale price of petrol back to where it was almost exactly four years ago.

Average petrol pump prices last week were 123.19p a litre compared to 118.83p the same week four years ago.

With VAT 2.5% higher now than in 2010, around 3p of the difference is due to the higher VAT. That left petrol forecourt prices last week less than 1.5p above where they ought to be compared to five years ago.

So far this week, that gap has closed to 0.75p as retailers pass on more of the reduction in costs.

Since mid-October, the average price of petrol across the UK, has dropped 4.3p from 127.22p a litre to 122.93p this week. Diesel has also fallen by around 4p a litre, down from an average of 131.30p a litre last month to 127.43p now.

In a rare glimpse at the track of oil prices through wholesale to the pump, AA analysis shows that early November’s wholesale price of petrol is at around $770-780 a tonne across NW Europe – a mere 1% higher than in early November 2010.

That consistency ends when comparing what retailers’ and suppliers’ margins are once tax and the cost of the product is stripped out – currently 1.5% more of the pump price than four years ago.

However, that contrasts with twice the improved margin (+3%) among refiners and petrol commodity traders.

The tables below show that input costs (product + tax) from October into November 2010 hit a plateau of around 112.5p a litre.

Once deducted from the pump price, the remainder (retailers’ and suppliers’ margins, with cost of transport and admin) represented 4.7% of the pump price. That has now gone up to 6.4%, with the input costs just below 115.5p a litre for the past month – reflecting the extra 3p from higher VAT.

The tables also show that despite the average oil price through October into the first half of November being almost the same now as it was in 2010, the wholesale price of petrol in NW Europe has been more than 3% higher this autumn than five years ago.

Finally, since the first week of October, the value of the pound against the dollar has fallen from $1.61 to $1.58, a 1.9% reduction. With wholesale at around $775 a tonne, the three cent drop in the value of the pound adds more than 0.5p to the pump price of petrol, before VAT.

“Over the past nine years, the AA has called for fuel price transparency in the UK – as is the case in the US, Australia and SE Asia. In 2012, the UK came within inches of getting it when the then transport secretary Justine Greening called in the fuel industry,” said Edmund King, the AA’s president.

“But the industry threw up obstacles and last year’s Office of Fair Trading report into UK pump pricing whitewashed its importance.

“Since the oil price has fallen from $90 a barrel to well below $80 in the past six weeks, drivers have been giving the retailers stick for not bringing their pump prices down more.

“The Government jumped on the bandwagon at the beginning of November with the Treasury also putting pressure on retailers.

“The fact of the matter, though, is that retailers dragging their feet when passing on lower costs to the pump is only part of the problem.”

King added: “If the forecourts think they are being blamed unfairly and the Government wants to get it right when pointing the finger of blame for families and businesses being denied the benefit of lower fuel costs, there is a very simple solution: oil, wholesale and pump price transparency.

“It is also about time the EU commission investigating oil and fuel prices reported at least some of its findings or gave a progress report - to explain why the commodity cost of petrol remains high when the oil price falls.

“European motoring organisations, representing 35 million motorists, still haven’t had a satisfactory answer as to why petrol’s commodity price hit $1200 a tonne with oil at $147 a barrel in 2008 but then returned to $1200 in 2011 with oil at only $125 a barrel.”

Comparing prices between retailer brands, Asda has now re-asserted itself as the significantly cheapest seller of fuel, averaging 1.8p a litre cheaper for petrol and 1.6p a litre cheaper for diesel compared to its nearest rival. Last month, the gap between Asda and Sainsbury’s average pump prices was less than half a penny.

Regionally, London has swung from offering the cheapest petrol across the UK to selling the most expensive, despite the average price in the capital falling from 127.0p a litre to 123.2p. The cheapest can be found in Yorkshire and Humberside, with an average of 122.7p.

Scotland is the most expensive for diesel with an average of 128.0p a litre while Yorkshire and Humberside is the cheapest at 127.2p.