Garages are passing on drops in the price of oil at the petrol pump, according to a limited consumer survey, writes David Labanyi
RESEARCH BY the National Consumer Agency (NCA) has found little evidence of petrol stations delaying the passing on of petrol- and diesel-price reductions.
The study was carried out to investigate the widely held perception that petrol and diesel prices increase quickly with stronger crude-oil prices, but when oil prices fall reductions at the pumps are introduced much more slowly.
It found that the supply of petrol and diesel appears to be “competitive by international standards” and said “savings are being passed on to consumers” at a national level.
However, the agency qualifies this by noting the relatively short time-span and limited nature of the study mean it cannot draw the same conclusion at a “county or local level” and calls for a more detailed monitoring of prices in the sector.
According to the report, it is inappropriate to make direct comparisons between crude-oil prices and what motorists are charged at a service station.
This is because the pump price is based on the cost of the refined product, known as the Platts price.
The NCA found that wholesale oil prices tracked Platts refinery prices by a “fairly constant margin” in volatile markets.
A “strong correlation between wholesale and pump prices” was evident and the NCA said differences in the cost of fuel were based on factors such as purchasing power and the level of competition in the immediate vicinity of the petrol station.
The agency has seen “confidential daily data over the period of a year plotting average daily retail prices for company-owned sites compared with Platts data . . . [and] for the most part, the trends move in the same direction”.
Another key finding was the proportion of the cost of fuel in the State made up of taxes and duties; 69 per cent in the case of a litre of petrol and 54 per cent for diesel.
The cost of the refined product accounts for just 26 per cent in the case of petrol and 37 per cent for diesel of the price paid by motorists at the pump, with the result that even if crude-oil prices fall sharply the price reduction at the pumps is mitigated by the level of taxes.
Based on an example where a litre of petrol cost €1.01, the gross margin for the retailer would be 2.5 cent, before running costs for the petrol station are included, the report found.
In fact, the report said the gross margin enjoyed by Irish fuel retailers is slightly lower than in the UK because the State has a relatively high number of petrol stations per capita resulting in higher competition.
In Ireland there is one petrol station for every 2,030 people, compared with one for every 9,539 in Britain.
According to the report, while many of the main oil companies are enjoying significant revenues, “profits are modest”.
It suggests very large profits reported by some multinational petrochemical firms may be based on their oil exploration and extraction activities, rather than selling fuel.
It also highlights the limited presence of multinational operators as an example of the “current competitiveness of the market”.
The report was based on four price surveys carried out on consecutive Fridays in November in more than 300 stations nationwide. Last November saw the largest monthly increase or decrease in fuel prices, with petrol dropping 11.8 per cent and diesel by 8 per cent in the Republic.
This compares to average price falls of 10.8 per cent and 7.6 per cent in Britain during the same month.
The NCA also examined the huge rise in the price of diesel , which historically has been cheaper than petrol. This trend is common across Europe and the International Energy Agency has said increases in demand, particularly from China, have left Europe “structurally short of diesel”, leading to increases in the wholesale price.
The NCA was asked by the Tánaiste Mary Coughlan to conduct the research.
One issue to emerge from the study is the weakness of collecting petrol price just once a month – as the Central Statistics Office does - given the level of volatility in the oil markets.