Fuel prices increase - Update

March 13, 2022
Darren Briggs

Last week's blog generated a deluge of interest and questions from customers. After another turbulent week, I want to provide an update and offer further insight into the world of petrol retailing. So put the kettle on - and pull up a chair…

The bad news - the price of refined petroleum products has risen sharply again. Why? There were substantial increases at the beginning of the week but on Wednesday and Thursday the '$ per tonne' commodity prices dropped by almost $200 per tonne for petrol and over $300 per tonne for diesel. However, the pound substantially weakened against the dollar by over 100 points, meaning that the wholesale cost of petrol has increased by almost 8p per litre and diesel almost 12p per litre. The strength of the pound against the dollar has a huge impact on fuel prices in the UK. The weaker the pound, the bigger the impact on prices!

So, the good news: crude (Brent) oil reached an eye watering $137 per barrel on Tuesday, but settled back to $119 per barrel on Friday, closing at a slightly lower price than the previous week. Hopefully the coming weeks will see this reduced cost reflected in refined product costs as the supply chain adjusts accordingly. This was evident with the drop in refined product costs on Wednesday and Thursday this week.

It is clear that the oil markets are now reacting to sanctions against Russia (both official and unofficial). Production is increasing to offset the loss of crude oil supplied via Russia to the global markets. Russia is undoubtedly one of the largest oil producers in the world.

In terms of prices at the pumps, the latest cost price increases will be reflected in pole sign prices in the coming days. Independent fuel retailers operating on a previous week's average cost price will receive the bad news tomorrow morning; we all receive pricing information via email around 8am every Monday). Fuel deliveries for this week will undoubtedly cost substantially more!

Independent fuel retailers operating on a previous day market on close are really feeling the heat. This week a Shell retailer in Pembrokeshire was retailing diesel at over £1.95 per litre. Is this retailer profiteering? Absolutely not. As previously stated in my previous blog all Shell independent retailers buy their fuel on a previous day cost price rather than a previous week average. In a near-vertical market, this pricing structure is brutal! That said, when the wholesale costs start to reduce, these retailers will be the first to benefit in reduced costs; hopefully this will be reflected in their pole sign prices once the older (more expensive) product has been sold through the pumps.

The average cost of a tanker of fuel is now over £65,000! Our Ascona network receives 10 loads a fuel a day on average - 7 days a week. Cashflow is king.

Since the beginning of February, wholesale costs of petrol and diesel have increased over 20p per litre and almost 30p per litre respectively.

GB News were very vocal this week reporting that a particular forecourt in Chelsea was retailing diesel for £2.29 pence per litre. Is this profiteering? Absolutely! Can I defend this pricing strategy? I can’t. However, this forecourt is unbranded and ultimately would not benefit from the supply economics of an oil company branded fuel agreement. I guess this site is purchasing fuel from a small independent local distributor at loads of less than 19,000 litres at a time; their costs will be substantially higher as a result - but not enough to justify a £2.29 price tag, in my opinion.

GB New also reported on a BP branded motorway service area (MSA) retailing diesel at £2.19 pence per litre. Is this profiteering? Yes! That said, MSAs are known for premium pricing. They have a captive audience. Pont Abraham (Esso branded and operated by Euro Garages) at the end of the M4 in Wales is just under £2 per litre for diesel.

We’ve seen a lot of price variations in pole sign prices due to the timing of fuel deliveries, previous week average cost verses previous day market on close and so on. The huge differences in cost prices in a fast-rising market are ultimately reflected in pole sign prices.

Two sites located 2 miles apart have different pole sign prices: why? Again, timing. Two Ascona sites, Crossgates and Ridgebourne, are located in mid-Wales and are both branded Texaco. One site received a new load of fuel with higher cost prices compared to the other site. These new higher cost prices were then reflected in an increase in the pole sign price at one site only. We could have increased both sites at the same time - but that would have been profiteering, and ultimately unfair to our customers.

Why do prices move 2 or 3 times a day? It makes economic sense to adjust the pole sign prices when a new load of fuel is delivered with residual older product in the tanks (at a lower cost). The new blended margin becomes lower, hence adjusting the pole sign incrementally up as the older product is sold through the pumps. We adopt this pricing strategy rather than one large substantial immediate upward movement, which is ultimately more beneficial to our customers.

How can I explain other pricing differences? The supermarkets are certainly benefiting from their 2-3 week pricing lag, detailed in last week's blog. It offers huge commercial benefits. That said, we are now seeing some supermarket sites with prices not far below some independent retailers'. Is this profiteering? I couldn’t possibly comment...

We are hearing of increased hostility towards our forecourt staff. It is completely unacceptable to take frustration out on team members. It’s a hard job at the best of times - and the forces at play here are beyond any of our control.

Ultimately, pole sign prices are driven by cost prices, which in turn are driven by supply and demand. It comes down to market forces and it is that simple. It is not profiteering.

A final thought: it was match day in Cardiff this weekend, with Wales was playing France in the Six Nations. Hotel prices in Cardiff are known to go through the roof on match days. A standard room at the Parkgate Hotel on a normal day is under £150; on match day, this Friday the same room cost £650! Supply and demand, perhaps, but undoubtedly profiteering!

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Darren Briggs

Darren leads the management team. Responsible for implementing strategies that drive unrivalled business performance and substantial growth.

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