Clubs call for action on stagnant prices

Publication date: 12 March 2009

Whilst the oil price per barrel has gone down, end prices for car drivers remain high. What explanations do clubs have?

During the oil price hikes of 2008, economists wondered how oil-producing states and oil companies would ever spend the money. Now, they fear low prices per barrel are harming long-term investment in the oil industry. Those questions, though, are far from the mind of drivers in many European states as prices at petrol stations fail to reflect the general fall in the price of oil per barrel, now hovering around USD 40.

Austrian club ÖAMTC is calling for a cut of six euro-cents in the price of “Super” and three euro-cents for diesel. “That would re-establish a fair balance,” says ÖAMTC transport economist Elisabeth Brandau. Last year, as EU governments earned millions thanks to higher taxes on petrol, the ÖAMTC collected over 100,000 signatures in a campaign against “fuel price madness”. Aside from tax measures, ÖAMTC then called on the government to enforce greater price transparency at petrol stations. Price transparency remains essential today. Recently, Brandau has seen fewer petrol price decreases and they certainly do not correspond to the base price. In January, Austria even saw the highest petrol prices increase twice.

Interestingly, Brandau's analysis shows the importance of competition and market openness. Traditionally, drivers in western Austria have faced the highest prices, up to four euro-cents per litre of petrol and even up to eight euro-cents for diesel. “Our problem with fuel prices is that there is an oligopoly in Austria with one big player OMV. Other companies follow their lead,” FIA Region I President Werner Kraus stated. “Normally, if the fuel price per barrel goes up, the petrol station increases end prices the same day. But if the price of the barrel goes down, then the price at the petrol station only goes follows after a few days,” he added.

There appears to have been more competition in the UK, which is facing one of the steepest recessions in the EU. “Fear of Christmas shoppers spending less in stores as a result of the economic downturn spurred supermarkets to maintain high-profile reductions in fuel prices. Shell exemplified the move by some non-supermarket retailers to become almost as aggressive as supermarkets with petrol pricing,” notes UK club spokesman, Paul Watters of The AA in their fuel price report.

In Ireland, prices have also fallen and are in the lowest band when compared with other “Euro zone” countries. But public affairs manager, Conor Faughnan warns about getting carried away. “We are really only getting back what we lost in the insane oil surge of 2008. Prices topped out at an unprecedented 144 cent for diesel in July.” Faughnan has not found clear evidence of a rip-off when it comes to adjusting prices downwards. “Especially not at the level of the local garage,” says Faughnan. “But then there is no clarity at all about prices, where they come from and how they are set.” AA Ireland, like other clubs, is following the issue closely.

“The greater part of the petrol price is tax,” explains Jürgen Albrecht, from Germany’s ADAC. At a price of EUR 1.35 per litre over 87 euro-cents is tax, whether value added or specific petrol tax. This works out at over 60% of the total price. “Real competition on fuel markets tempers the prices for petrol and diesel,” continues Albrecht “This requires, on the one hand, a heterogeneous petrol station structure with a sufficient number of efficient and brand-independent suppliers. On the other hand, one needs an especially price-conscious petrol culture from car drivers.” On its website, ADAC recommends that car drivers systematically compare prices and fill up at the most price-worthy stations.

At its general assembly last October, France's Automobile Club called for an immediate reflection of petrol price falls at stations. If prices go up there should be a measure to stabilise petrol prices. A third point, in the club's resolution, was an end to the French practice of slapping value added tax on top of the petrol tax. Such a practice is one of the major reasons why when oil prices tumble; car drivers see no benefit in their purses. “For French households, petrol remains the most significant expense item after costs linked to buying a vehicle,” notes the association. These views have also been seconded by Monique Denhaen of Belgium’s Touring club where the Belgian Government adopts a similar approach to petrol taxation.

Actions in Brussels

Following a series of campaigns to protest against the related rising cost of motoring (e.g. ÖAMTC, TCB, ADAC, AvD, The AA Ireland and The AA) the ÖAMTC and the the FIA European Bureau addressed a series of issues including the increase of oil and value-added taxes, the earmarking of tax receipts, the promotion of market competition and the price transparency towards consumers in the workshop in October 2008. An overview of these campaigns was published on the FIA European Bureau website.

FIA’s Region I President Werner Kraus sent a letter to the European Commission in September 2008 about the competition in the Austrian and Portuguese fuel markets.

The FIA European Bureau together with the experts from the ACP and the ÖAMTC had a meeting with the European Commission Directorate-General for Competition as well as a meeting with the European Commission Directorate-General for Transport and Energy. The meetings gave the opportunity for an exchange of information about the situation in Austria and Portugal. The FIA European Bureau is currently in discussion with a further unit within the European Commission Directorate-General for Transport and Energy which is working on a study regarding the functioning of the European fuel markets.

The ACP wrote in October 2008 to Commissioner Neelie Kroes to draw her attention to the situation in Portugal. In 2008 the Portuguese Competition Authority (PCA) delivered a public report on the fuel market in Portugal, clarifying the formulation process for the retail prices of the liquid fuels (petrol and diesel) and its connection with the evolution of the crude oil price (Brent), the refined products (Platts) and the euro/dollar exchange rate. The PCA concluded that there was no clear evidence of retail price-fixing by the various companies operating in the market. However, the ACP noted in the same year that after having reached record heights the crude oil price dropped by approximately 40% while the petrol price dropped only by 6%-11% and the diesel price dropped only by 10%-13%. These facts caused ACP grave concern and lead the club to carry out an own- initiative study of the Portuguese oil market, the conclusions of which were made public in October 2008. Both the public data gathered by the ACP as well as the reactions of the oil companies operating in Portugal to the increase and decrease of crude oil prices along with the profits announced by some of these companies suggest the existence of structural rigidities in the Portuguese markets especially with regard to competition, leading to an oligopolistic equilibrium in the Iberian market, reinforced by institutional links, and amounting to permanent collusion, either explicit or tacit, between the main oil companies operating in Portugal and Spain.

“We must ensure that the European Commission reacts on this issue. It is our job to make the case on behalf of consumers as forcefully as possible for the sake of their wallets” says Olivier Lenz.

International Eurozone Petrol Prices in January 2009 (average retail price per litre/source: www.aaireland.ie/petrolprices)

Country	Unleaded	Diesel
Austria	93.9	96.3
Belgium	117.8	98.8
Finland	114.7	97.9
Germany	116.4	108.5
Greece	83.0	95.2
Netherlands	130.1	103.1
Italy	112.7	113.5
Luxembourg	91.1	88.0
Ireland	94.6	94.4
Spain	87.0	88.0
France	113.6	101.7
Portugal	112.5	91.0
Slovenia	91.0	94.0