NCA Petrol and Diesel Price Investigation

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<p>Investigation into Petrol and Diesel Price Movements</p> <p>December 2008</p> <p>Executive SummaryThe National Consumer Agency is pleased to submit the following report in response to the Tanaistes request that the Agency undertake a survey into why pump prices for petrol and diesel have not fallen in line with the drop in the wholesale price of oil. This report has been prepared over a short timeframe, between September and December 2008 by the in-house research function of the National Consumer Agency. In light of the time and resource restrictions, a decision was taken to limit the dataset for analysis to crude oil and downstream product prices between January and December 2008. Whilst analysis over a longer timeframe and using larger datasets may permit greater detail and facilitate identification of even small variances from trend, the NCA is confident that the general trends observable over the period under examination presents a fair reflection of the current state of the Irish consumer petrol and diesel market. Based on the key findings of the research, the NCA has concluded that: There is little evidence to suggest unwarranted delays in the passing on of wholesale price changes to the consumer at the pump. Direct comparison between fluctuations in crude oil prices and petrol and diesel pump prices is inappropriate and does not reflect the reality of the petrol and diesel supply chain. To more accurately assess flow through of price changes in refined oil products (such as petrol and diesel) to the consumer, it is necessary to compare fluctuations in Platts prices, these being the prices for Refined oil products such as petrol and diesel paid by wholesalers, and prices at the forecourt pump. Platts prices and wholesale prices should differ by a margin comprising the impact of exchange rates, taxes, transportation and associated costs. The subsequent difference between wholesale and pump prices is typically dictated by the purchasing power of the end retailer (discounts accrue based on volumes purchased, membership of a branded chain etc.) and an allowance for the retailers margin. Analyses of these fluctuations over the time period of this study suggest a strong correlation between Platts prices and wholesale price fluctuations and the price of diesel and petrol at the pump (allowing for changes in the euro/ dollar exchange rates). A large proportion of the pump price of fuel in this country comprises taxes and duties. The manner of their calculation can depress overall pump cost savings to consumers, notwithstanding drops in the underlying cost of the refined fuel product. Overall, Irelands service station/retail petrol and diesel supply market would appear to be competitive by international standards. The density of outlets per capita (1 outlet per 2,020 people) in Ireland compares favourably against corresponding statistics for Northern Ireland (1 outlet per 3,113 inhabitants) and for Great Britain (1 outlet per 9,539 inhabitants). Data is required at the local level to make a definitive statement in this regard.</p> <p>1</p> <p>Examination of the accounts of the larger oil companies in Ireland suggest there is relatively modest profit to be made in the downstream supply of refined oil products. Further along the supply chain, statistics measuring the numbers of service stations and fuel outlets in the country point to sustained shrinkage year on year, which would further suggest this is not a highly profitable area in which to operate, at least at the level of fuel supply only. Increasingly, fuel retailers are adding retail outlets to their offerings, thereby enhancing revenue and margin opportunities. A review of international studies on the same issue in the USA, Austria and Portugal reached broadly similar conclusions, identifying closely aligned movements in Platts prices and petrol and diesel pump prices. Absolute fuel price competitiveness in Ireland would appear to be most significantly influenced by the effects of local competition. Areas with larger numbers of fuel retail outlets typically enjoy strong price competition, with the converse applying in sparsely serviced areas.</p> <p>Notwithstanding these conclusions, the National Consumer Agency has identified a range of gaps in the manner in which information on petrol and diesel prices in Ireland is collected, analysed and made available. There is clearly scope for enhancement in analysis and reporting, and improvements in this area could serve to better inform consumers of general trends in petrol and diesel prices and to place a sustained spotlight on the competitive environment in this important sector.</p> <p>2</p> <p>Table of Contents1 Introduction.............................................................................................................................. 5 2 The Oil Market in Ireland........................................................................................................... 7 2.1 Refineries......................................................................................................................... 7 2.2 Wholesalers...................................................................................................................... 8 2.3 Distributors....................................................................................................................... 9 2.4 Retailers........................................................................................................................... 9 3 Pricing.................................................................................................................................... 12 3.1 Whitegate Refinery ........................................................................................................ 12 3.1.1 Refined Product Pricing - Month Average Customers............................................13 3.1.2 Refined Product Pricing - Twice Weekly Price Changes.........................................14 3.2 Wholesalers.................................................................................................................... 16 3.3 Oil Distributors /Retailers................................................................................................ 27 3.4 Competitiveness of the Market....................................................................................... 29 3.4.1 Oil Company Performance.................................................................................... 29 3.4.2 Numbers in the Market......................................................................................... 30 4 Collection of Retail Price Data ................................................................................................ 31 4.1 Retail Price Data............................................................................................................. 31 4.1.1 AA Ireland Data Collection.................................................................................... 31 4.1.2 Website Data ...................................................................................................... 32 4.1.3 Central Statistics Office Data Collection............................................................... 33 4.1.4 EU Data Collection............................................................................................... 33 4.2 National Consumer Agency Surveys............................................................................... 35 5 Conclusions............................................................................................................................ 39 Annex 1 Investigations............................................................................................................. 41 Investigations........................................................................................................................... 41 USA 41 Austria................................................................................................................................. 41 Portugal............................................................................................................................... 41 Other Studies ...................................................................................................................... 42</p> <p>3</p> <p>Table of FiguresEurope Brent Spot Price January to December 2008..................................................................12 Refinery Versus Crude Oil Prices................................................................................................13 Whitegate Customer Area..........................................................................................................15 Whitegate Refinery Margin........................................................................................................16 Platts Quotes/ ConocoPhillips Wholesale Prices..........................................................................18 Platts Quotes/ Campus Wholesale Prices...................................................................................19 Platts Quotes/ Emo Wholesale Prices.........................................................................................20 Platts Quotes/ Esso Wholesale Prices.........................................................................................21 Platts Quotes/ Maxol Wholesale Prices.......................................................................................22 Platts Quotes/ Morris Wholesale Prices......................................................................................23 Platts Quotes/ Topaz Wholesale Prices.......................................................................................23 Platts Quotes/Texaco Wholesale Prices......................................................................................24 Platts Quotes/ TOP Wholesale Prices..........................................................................................25 Petrol and Diesel Prices ............................................................................................................31 AA Ireland versus Platts.............................................................................................................32</p> <p>Table of TablesTable Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table 1Platts Variation Versus ConocoPhillips Wholesale Prices.................................................18 2Platts Variation Versus Campus Wholesale Prices..........................................................19 3Platts Variation Versus Emo Wholesale Prices................................................................20 4Platts Variation Versus Esso Wholesale Prices................................................................21 5Platts Variation Versus Maxol Wholesale Prices..............................................................22 6Platts Variation Versus Morris Wholesale Prices.............................................................23 7Platts Variation Versus Topaz Wholesale Prices..............................................................24 8Platts Variation Versus Texaco Wholesale Prices............................................................24 9Platts Variation Versus TOP Wholesale Prices.................................................................25 10 Petrol and Diesel Price Build-up early December 2008................................................26 11 Petrol and Diesel Prices Cost of Product and Taxes....................................................26 12 Setting of Price - Summary..........................................................................................28 13 Oil Company Accounts ...............................................................................................29 14 Petrol Prices 7 November 2008...................................................................................36 15 Diesel Prices 7 November 2008...................................................................................37 16 National Results Petrol ...............................................................................................38 17 National Results Diesel ...............................................................................................38</p> <p>4</p> <p>1 IntroductionThere is a widely held view that when the price of crude oil increases, petrol and diesel prices at the pump rise quickly, but that when the price of crude oil decreases, prices at the pump are slower to fall. In September 2008, the Tnaiste and Minister for Enterprise, Trade and Employment Mary Coughlan, TD, requested the National Consumer Agency1 to undertake a survey into why pump prices for petrol and diesel have not fallen in line with the drop in the wholesale price of oil. The Tnaiste went on the say that I consider it important that there should be greater transparency between the manner in which the retail price for fuel paid by consumers follows changes in the wholesale price. This document presents the findings of the Agencys investigation into the movement of petrol and diesel prices in Ireland. The analysis in this study is based on information commencing January 2nd 2008 and includes data collected up until the first week of December 20082. In compiling this investigation, the Agency has: Held discussions with oil companies (Texaco, Top, Esso, Maxol, Topaz, ConocoPhillips), oil distributors (East Cork Oil), retailers (Tesco, Applegreen3, individual retailers) and other relevant parties (National Oil Reserves Agency, Irish Petroleum Retailers Association, Competition Authority and Department for Communications, Energy and Natural Resources), Conducted extensive surveys of petrol and diesel prices at the pump (over 2,400 prices gathered over 4 Fridays in November), Analysed wholesale and retail prices in Ireland and compared these with prices for refined product at international level. In order to understand how and why prices change it is necessary to understand how the oil industry operates. As a result, a significant proportion of this report is concerned with describing the market for petrol and diesel in Ireland. This will improve transparency and it also provides useful context for the sections of the report that analyse price fluctuations. This study was conducted within the following parameters: Only the market for petrol and diesel4 was examined, Within this market, only sales to private consumers were examined5Hereafter referred to as the Agency. This tightly restricted time frame simplified the required analysis, as a longer-term study would require correcting for changing distribution costs, longer term inflation etc. 3 The Agency would have liked to consult with a number of other oil companies in Ireland but there was insufficient time. 4 The Agency is happy to examine the market for home heating oil at the request of the Tnaiste. While wholesale prices are readily avai...</p>

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