Do allegations of fuel price gouging stack up?

Over the past month, diesel and petrol prices have soared to levels not seen since the aftermath of Russia's invasion of Ukraine in 2022 - a conflict that sparked a global cost-of-living crisis.

At the beginning of March, the pump price for both fuels was hovering around the €1.70 a litre mark.

But supply disruption originating in the Middle East has seen prices surge to around €2.08 per litre for diesel and roughly €1.85 per litre for petrol.

And it's worth noting those prices reflect the Government's temporary excise cut of 20 cent on a litre of diesel and 15 cent on petrol, which will be in place until the end of May.

The considerable and relatively sudden jump in fuel costs for motorists has led to allegations that service-station operators have been exploiting the situation in the Middle East to extract more profit on sales.

This suggestion is strongly denied by the industry, nonetheless the perception among consumers remains.

But how legitimate is the claim of fuel price gouging?

Let's explore...

According to the Competition and Consumer Protection Commission (CCPC), price gouging is where a trader charges prices at a level considered unreasonable or unethical and is a term often used in situations where a trader makes very high profits as result of a crisis or disaster situation.

Though the CCPC points out that this is not against the law and retailers are free to set and change their prices as they wish.

But if traders collude to fix prices at a certain level (for example, if a group of service stations in an area agreed between them to keep fuel prices higher) then this is considered cartel behaviour and would be illegal.

How much have fuel prices at the pump spiked by?

It's next to impossible to get an exact figure on this, because there are literally thousands of different service stations across the country - many of which would have different prices that are changed daily.

AA Ireland publishes a National Average Price Index every month that gives a snapshot and is useful for tracking any significant jumps or falls, although it doesn't necessarily always reflect the most current state of play.

For example, according to the February pump-price figures from AA Ireland, diesel was averaging €1.72 per litre, with petrol at €1.73.

Then the March numbers from the AA indicate average prices per litre rose by 18 cent to €1.90 for diesel, and by eight cent to €1.81 for petrol.

But anyone who has visited a forecourt in recent weeks can tell you prices spiked by a lot more.

In fact, before the Government announced the excise cuts diesel had reached more than €2.30 a litre at many pumps, while petrol was costing around €2 per litre in many locations.

Based on this, it would be reasonable to say diesel jumped by around 60 cent a litre, and petrol went up by roughly 30 cent a litre.

What do forecourt retailers say?

Not surprisingly the industry denies any allegations that service-station operators are engaging in profiteering.

Fuels for Ireland is the representative body for firms involved in the importation, distribution and marketing of oil products in the country.

Its Chief Executive Kevin McPartlan says it's "simply false" to suggest price gouging is happening.

He says "it's entirely possible that prices rise very rapidly to a very high level, that people are hurting by them, that they're annoyed at the high price, and for it not to be a result of price gouging.

"In this instance, this is verifiable," the industry spokesperson added.

Mr McPartlan is pointing to publicly available data on wholesale diesel and petrol prices (available for a fee from companies like Portland Pricing and PLATTS).

Based on figures from the beginning of March, the spikes in wholesale fuel prices correlate closely with prices paid at the pump.

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The above chart from the RAC Foundation in the UK demonstrates this is the case for the current crisis, as well as in the aftermath of Russia's invasion of Ukraine in 2022 (the last time we saw such a severe jump in fuel prices).

Here, the Central Statistics Office regularly compiles data on wholesale fuel prices - however, the past few weeks that cover the most recent escalation in the Middle East are not yet reflected in the figures.

Despite this, we can see that in the first half of 2022 there was a sharp rise in annual wholesale diesel (+49% in June) and petrol (+38.5% in June) prices.

This increase in wholesale prices was quickly reflected at the pump, with AA Ireland average prices for that period indicating diesel rose from €1.66 a litre in January 2022 to €2.05 by June of that year.

The AA figures also show that by the end of 2022, diesel and petrol prices had returned to their pre-war levels.

However, what isn't clear from the link between wholesale and pump prices is how quickly any increases - and indeed decreases - in cost are passed onto motorists.

The well-worn criticism of service stations is they are quick to pass on any price hikes but much slower to do the same with reductions.

The perception that petrol stations might engage in such behaviour is unofficially known in the economics world as the rockets and feathers phenomenon.

This is an analogy referring to prices rising rapidly like a rocket when there is an increase in input costs, but falling slowly like a feather when input costs drop.

On the forecourts though, this is extremely tricky to verify.

When the Government introduced the temporary excise cuts on diesel and petrol last month, there was quickly criticism of retailers that had not reduced their pump prices right away.

The reason from the industry at the time to explain this was that some service stations were still selling old fuel supplies on which they had paid a higher excise and therefore would be selling at a loss if they reduced their prices immediately.

They said prices would come down as newer supplies - on which the lower excise rate was paid - fed through to the pumps.

Though some observers of pump prices around budget time might point out that when an excise duty increase on fuel is announced, it is seemingly factored into forecourt prices almost immediately.

On this, UCD Energy Economist Lisa Ryan says suppliers are "risk averse".

"If there's a risk, they raise their prices but even if the risk goes away they can be reluctant to reduce prices quickly."
She also suggests that "maybe there's an element of wanting to hold onto more profit for a short time" but that "within reason they shouldn't be holding onto higher prices".

Ms Ryan points out this "shouldn't be an issue if you have perfect competition in the market, but if there's an issue with competition" that changes things.

In relation to the allegation of price gouging more broadly among fuel retailers, the UCD energy economist believes "even over the last while they don't seem to be raising their prices disproportionately compared to wholesale market prices".

Ms Ryan says "there is more transparency around petrol and diesel prices and good competition, so we are less likely to see cartel behaviour.

What does the consumer watchdog have to say about all of this?

Last month, the Competition and Consumer Protection Commission (CCPC) was asked by the Government to look into the higher prices being charged by fuel retailers.

It also pointed out there is no legal obligation on companies to set their prices at a level consumers consider fair, however, it advised consumers to take their business elsewhere where they are treated poorly.

The CCPC was also tasked with reviewing the Irish motor fuel market in 2022 , after the Government announced an excise cut on diesel and petrol in response to surging prices at the pumps.

At the time hundreds of consumers complained to the watchdog, alleging things like service stations in the same area co-ordinating to charge the same retail price, service stations raising prices in anticipation of the excise cut so they could reduce prices once the cut was implemented and capture the benefit of the cut for themselves, and the excise cut not being passed on immediately and in full to motorists.

The 2022 CCPC study concluded ultimately that rising international prices drove increases in prices at the pump in the period leading up to the excise cut, rather than a lack of competition.

It also found no indication of co-ordinated pricing behaviour and that average retail price spreads were not excessive in comparison to the market's longer-term retail spreads.

The commission also said that similar pricing over a short period of time is not necessarily indicative of anti-competitive behaviour.

The 2022 report noted that "in instances where sales were concentrated amongst one or two fuel companies in a particular location, the data showed that those companies were the most competitively priced in the local area during the period of analysis.

"Conversely it indicates that service stations which have higher prices will see consumers switch their business away if there are alternative options within a reasonable distance."
Essentially, the CCPC gave service stations a clean bill of health in terms of competition.

In a properly functioning market where there is sufficient competition, pricing should be competitive - and that is essentially what the CCPC determined.

Based on those findings, it is likely that the watchdog will reach a similar conclusion when it completes its 2026 report.

How much competition is there and who is making the most on fuel?

Taking a quick spin around any major or even minor town in Ireland, you will generally see a good spread of brand names on forecourts.

A quick dive into the figures backs up the idea there is strong competition in the motor-fuel sector.

Fuel sold in the various service stations across the country enters through a number of terminals and can be supplied directly from these terminals or through company owned depots.

There are currently five terminals importing refined fuel products: - TOP Terminal, Dublin port (owned by Irving) - Joint Fuels Terminal, Dublin port (owned by Valero) - Circle K Terminal, Dublin port (owned by Circle K) - Foynes Terminal, Limerick (owned by Atlantic Fuel Supply) - Enwest Terminal, Galway (owned by Edwards Holdings)
Separately, there are a number of terminals in Northern Ireland, which may supply fuel to service stations here.

While some crude oil products are imported into Ireland and refined at Whitegate refinery in Cork (owned by Irving).

In terms of service stations then, around a third are owned and operated by Circle K (13%), Applegreen (10%), Maxol (6%), Top Oil (3%), DCC (3%), and Greenergy (1%).

Whereas two thirds of fuel stations are owned and operated by small traders or independent brands.

However, the branded fuel companies tend to operate stations with larger sales (estimated to account for around 66% of all motor fuel sales).

In terms of where the cost of a litre of fuel goes, there are a few different elements.

Government taxes make up the biggest chunk of the price - more than half.

It varies slightly for diesel and petrol, but is broken down into excise duty, carbon tax, and VAT.

Two cent of the cost of every litre goes towards the National Oil Reserves Agency.

The margin for retailers can also vary massively depending on when and where the fuel is bought and sold, but it works out at roughly 6% and ends up at around two cent per litre once the cost of business is factored in.

So while pump prices can vary from one forecourt to another, the big jumps we've seen recently can be explained by the rise in wholesale prices.

What is less certain is when a service station is selling supplies it paid higher or lower prices for; this is something especially scrutinised around the time of the excise cut.

Some service stations may well have been selling older stock on which they paid a higher excise duty before the cuts, and only reduced prices once the cheaper fuel they bought (on which a lower excise was charged) was being sold to motorists.

However, it would be hard to prove if a small cohort of service stations held onto higher prices for longer than they should have.

Ultimately though, a market with healthy competition should ensure that prices remain fair across the board - and this is what the CCPC found is in place.

Finally, it's worth considering that in terms of fuel-price increases at the pumps, what is happening here is being closely replicated across Europe.

That does not make a near doubling in price any easier to absorb though.