Proactive Investors - Petrol station operators, including Shell PLC, BP PLC, Tesco and Sainsbury have been found to have used ‘rocket and feather’ price changes by the UK competition watchdog around the country this year, with signs that this was aiding an increase in profit margins.
The Competition & Markets Authority (CMA) is in the middle of a market-wide investigation into road fuel prices, which was commissioned by the government after the sharp spikes were recorded following the surge in global oil prices after Russia’s invasion of Ukraine.
In an initial report, the CMA said petrol and diesel prices retreated from the peaks seen at the start of its probe, though they have recently begun to increase again, with diesel prices in particular coming close to the previous peak, and an increased gap opening between petrol and diesel prices.
The ’rocket and feather’ effect has been a concern of the CMA for a number of years, it said, with pump prices lifted like a rocket when wholesale prices increase and then falling back slowly like a feather when underlying prices decrease.
While there was no evidence found of generalised rocket-and-feather pricing before the start of 2022, it was seen “across all types of retailers”, including forecourts owned by oil companies such as Shell PLC and BP PLC and those owned by supermarkets such as Tesco PLC and J Sainsbury PLC.
For both increases and decreases, the CMA said it “saw 80% of a wholesale price change passed through after six weeks, but within those six weeks some of the pass-through happened earlier for increases than for decreases”.
Supermarket fuel margins have been rising over the past five years, the CMA found, with the gap narrowing compared to non-supermarkets filling stations.
This will be investigated further in the next phase of the study, the agency said, as well as considering the impact of recent supermarket mergers and whether the rocket-and-feather pricing “was a temporary aberration or the start of a new longer-term trend”.
Oil refining companies were, however, not found to have made excess profits over the past five years, as while they did earn higher profits than usual in 2022, “they had made lower than usual, or even negative, profits during 2020 and 2021”.
The CMA suggested this stemmed from reliance on Russia for diesel imports, rather than a reduction in UK refining competition.
“While we do not, therefore, believe that this volatility can be mitigated by measures to improve directly the functioning of the UK market, the impact of higher price volatility and periods of high pump prices on motorists is significant.”
Wider policy options for mitigating these effects will be considered in the next phase of the study, the agency said.
Differences in average price between regions and between urban and rural areas were found to be “small”, with the highest-priced petrol filling stations found to be those with the fewest competitors
Motorway filling stations were “significantly more expensive” than non-motorway sites, but price variation between motorway sites was relatively small.
Supermarkets were found to price below non-supermarkets and to help drive lower prices at other petrol stations in the area.
An initial findings report will be published in spring 2023 and a final report in advance of the deadline of 7 July 2023.