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Petrol prices: UK watchdog raises concerns over refinery margins

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The UK’s competition watchdog will launch an in-depth investigation into the fuel sector after raising concerns over the margins made by refineries amid sky-high fuel prices on forecourts across the country.

In an urgent review commissioned by the government and published on Friday, the Competition and Markets Authority (CMA) said it had “found cause for concern in the growing gap between the price of crude oil when it enters refineries, and the wholesale price when it leaves refineries as petrol or diesel”.

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The business secretary, Kwasi Kwarteng, last month asked the competition watchdog to carry out a “short and focused” review into the fuel sector amid claims that petrol retailers were profiteering.

The CMA will now begin a deeper investigation into the fuel sector, with an interim report due in the autumn. It includes plans to look at whether the disparities in price between urban and rural areas are justified.

Retailers had been accused of not passing on a 5p cut to fuel duty announced in the former chancellor Rishi Sunak’s spring statement in March.

However, the CMA review found “on the whole the fuel duty cut appears to have been implemented, with the largest fuel retailers doing so immediately and others more gradually”.

The watchdog said 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”. It said the refining spread had tripled in the last year, growing from 10p to almost 35p a litre.

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Fuel prices have hit record highs in recent weeks. The RAC said the average cost of a litre of petrol rose 16.59p in June, breaking the previous 11p record rise in a single month in March.

Petrol now costs 191.27p per litre with diesel at 198.84 on average, the RAC said. That puts the cost of a typical 55-litre tank of petrol at £105 while the same volume of diesel costs £109. This week drivers staged protests over prices.

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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: “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.”

The outcome of the investigation is a victory for retailers, who have argued they are working on small margins and that oil refineries have not passed on a fall in the price of crude oil since the highs during the early days of the war in Ukraine.

Gordon Balmer, executive director of the Petrol Retailers Association said: “In recent months, we have seen motoring organisations and politicians attempting to scapegoat petrol retailers. This report exonerates petrol retailers and leaves unanswered questions about the extent to which these critics understand the retail fuel market at all.”

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Britain only has a handful of large remaining refineries: the Humber and Prax Lindsey refineries in north Lincolnshire; Esso’s Fawley site in Hampshire; Valero’s refinery in Pembroke, the Stanlow oil refinery in Ellesmere Port, Cheshire, owned by India’s Essar Group, and Grangemouth in Scotland, owned by a joint-venture between PetroChina and Ineos.

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However, Jack Cousens, the AA’s head of roads policy, said the motoring group “argues that the problem is not the gap between the oil price and wholesale price feeding through to the forecourts but the length of time it takes for that wholesale price to be reflected at the pump”.

He added: “The fuel trade has no trouble in passing on rising costs to the customer but lags badly in passing on savings. It has been labelled ‘rocket and feather’ pricing, and it exists.”

The RAC fuel spokesperson, Simon Williams, urged officials to complete the review swiftly. He said: “As each day goes by and the cost of living crisis is felt ever more keenly, the need for retailers – especially the largest ones – to reflect wholesale prices fairly becomes ever more urgent.

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