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European Commission Oil Market Study Validates FIA claims

Publication date: 10 May 2010

The European Commission’s published survey results on the competitive aspects of oil and oil product markets in the EU pronounces on many of the issues of concern that FIA clubs have long harboured concerning the way in which fuel prices at the pump are fixed. The survey was launched following several FIA complaints to the Commission about the lack of transparency in the formation of fuel prices. Indeed we asked the Commission to investigate and study the markets.

Back in September 2008, Eurocouncil Chairman Werner Kraus, raised the issue of competition and transparency in the fuel market in a letter to the then European Commissioner for Competition Neelie Kroes. The lack of competition in the Austrian and Portuguese fuel markets was pinpointed. The most worrying  concern highlighted was the way in which increases in wholesale prices are reflected immediately at the pump, while the recent spectacular drops in prices are very slow to filter through to the pump price and it is not clear if the consumer has felt the full benefit at  all. FIA, ACP, ÖAMTC met the responsible Commission services and asked them to investigate the functioning of the fuel markets. The objective was to obtain results  that would  allow the concerned Member States to take action to reinforce the competition in the specific markets as and where necessary.

The study finds little evidence of overly concentrated markets at retail or refinery levels. Moreover it states that the high vertical integration across the chain can be offset by well functioning wholesale markets in most countries analysed. The researchers claim that many of the price differences between regions and countries are consistent with underlying cost differences and the differences in cost structure at the retail level relate more to the strength of competitive pressure.

“Regulatory barriers at the national level do restrict competition and should be minimised”.

In conclusion the study does not find any fundamental structural barriers at a pan-European level. Specific national barriers such as regulations preventing hypermarket sites from building retail forecourts are however pinpointed. The researchers therefore see a need to incentivise further competition, for instance through supermarket entry or aggressive retailers offering new services and adopting new cost saving practices.

“National oil company advantages should be examined”

At a national level the researchers see a need for authorities to ensure regulatory barriers are minimised. Predominantly this could be carried out by removing restrictive regulations regarding the establishment of hypermarket sites and/or by a swift and generous application of permits for establishing sites. In addition, ongoing monitoring of the activities of the incumbent national oil companies to prevent them from exploiting the advantages of their historic incumbency position should be performed.

“Benchmarking of Member State performance is recommended”

Against this background the researchers see little formal action to be undertaken at a European level. Nevertheless, regular benchmarking of performance across Member States based on identified key indicators for competitiveness in oil and oil products market is seen as beneficial in monitoring progress in a similar manner to studies in other energy sectors.

“Effective benchmarking requires Member States to provide more transparency and consistent and comparable retail price data”.
As the Commission will need accurate data, two improvements are proposed.

Firstly, researchers suggest that information in most countries should become more transparent. The study concludes that there is a lack of statistical data, not least on prices in crude and product markets, in most countries, making informed comparisons of markets difficult. This hampers any analysis of the market in this region and national agencies could consider establishing monitoring measures that focus on market performance including, for example, comparisons regarding the level of and development of different spreads and market accessibility.

Secondly, researchers suggest addressing the lack of consistency and comparability of reported retail price data across Member States to ensure efficient monitoring of the relative performance across markets and fuels. The report of the Market Observatory for Energy earlier in 2009 should serve as a basis for improving the reporting methodology of Member States for the EU Oil Bulletin.

While the study does not address the specific problems of the Austrian and Portuguese fuel markets highlighted by the FIA, the conclusions of the researchers address FIA key concerns related to the general lack of transparency. They confirm the need for better information allowing a higher level of market transparency.

The FIA European Bureau intends to pursue the recommendations of the study with the Commission in order to improve Member States reporting  and competition in the European fuel markets.

For more information, please see the following study: 2009_oil_market_survey.pdf 

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