The great oil swindle

KStaford

So the wholesale price of oil is currently a mere third of what it was a few months ago (hovering around €50 a barrel.

1. The price is not being reflected properly at the pumps and the rate at which the price is dropping is arguably too slow.

2. We have indured several substantial price increases in gas and electriciy in Ireland over the past two years. The price increases were ok's by the energy regulator based on the increasing price of oil. So now the regulator should be advising (strongly) the energy companies to drop their prices. Why has this not happened ?

3. Why are we toleratring this? I know we are a captive audience / market, we have to put fuel in cars, we have to heat homes etc. But surely we should be shouting loudly about it. How come it snot more of a media issue?

juuge

In my area in Wicklow there are five petrol stations all within about six miles of each other and each are a different company, Maxol, Texaco, Toughers and Topaz. All are charging exactly the same price for both diesel and petrol.
As all are different companies/franchises with different overheads, costs etc it's amazing how they can all arrive at the same price 'exactly'. Looks like 'price fixing' to me !
I contacted the competition authority and was told that I require written proof that there is a breech of competition rules. WTF?

Petrol Stations sell a Homogenous (identical) good.

If one petrol station cuts its price to 95c per litre to sell more, then all other 4 will also do the same, and then all thats happened is that all of the petrol stations just make less money as they sell the same quantity as before with a lower price.

I'm not saying that we are not being overcharged, I am just contesting your point on price fixing.

Petrol stations are as close to perfect competition as it gets...

Welease

How much % final pump cost of the gallon you buy is determined by the cost of a barrel though?

At 50 dollars a barrel, i'd imagine its pretty low, so therefore wouldnt expect to see much of a further drop down while their refinining, transportation, salary etc etc etc costs remain relatively static.

From memory, it was about 1 Euro per litre last XMas, it went up to 1.36 for diesel during the year and its back down to about 1.06..

gerrycollins

Many petrol stations owners do not reduce the price of their petrol until they buy the cheaper stuff themselves hence why some country stations are very high priced, low turnover, apart from the lack of competition.

The main issue is competition and the willingness of stations to lower their prices as the rest will follow. I can tell you for a fact that station retaillers make very little per liter sold. They like any other retailer can charge what they want for a comidity the rest is up to us who agree to pay that price.

Not trying to insult the OP but contacting the competition authority please, they are a joke look at the country and the supposed job they have been tasked with? the only few they have managed to catch were some car dealers and thats not going to affect our cost of living greatly, you would have gotten some result targeting the petrol station owners directly.

one last thing, the price you hear quoted in the papers and on the news are for at this stage December pricing, so adversly we are only been rewarded now with price reductions achieved in October for Novembers stock.

In the independant on Thurs or Fri the regulator was quoted in saying that ESB and all the rest have rectracted their request for further price increases. The only problem here is that these companies hedge their bets and buy when they think the price is at a reasonable price for the foreseable future. So the ESB for example may have bought in Aug/Sept when the price was going up(thinking it would continue to do so) and they would have bought maybe 3 months supply at that price so consequently we are paying for our ESB at that rate. its only when they start using the cheaper fuel will our prices start to reduce but again if they can charge it why reduce it. Its our responsiblity, I think, to put pressure on the regulator to push the comanies to reduce the prices. I think there will be enough public pressure to make it happen but if you see it before Easter we will be doin well.

It is a big media issue, the only problem the whole world it at the mercy of the oil producing countries and companies, however with a global resession the price will fall more and will trickle down to us eventually however OPEC might decide to reduce production thus pushing the price back up again but not to the levels we saw a month or so ago.

Even Air Lingus has reduced the cost of long haul flights because of the downturn however their fuel surcharge remains the same because they are still using fuel bought at a time when it was dearer than now thinking it would increase in price

mgsrocks

KStaford wrote: »

So the wholesale price of oil is currently a mere third of what it was a few months ago (hovering around €50 a barrel.

1. The price is not being reflected properly at the pumps and the rate at which the price is dropping is arguably too slow.

2. We have indured several substantial price increases in gas and electriciy in Ireland over the past two years. The price increases were ok's by the energy regulator based on the increasing price of oil. So now the regulator should be advising (strongly) the energy companies to drop their prices. Why has this not happened ?

3. Why are we toleratring this? I know we are a captive audience / market, we have to put fuel in cars, we have to heat homes etc. But surely we should be shouting loudly about it. How come it snot more of a media issue?

Just to point out, not all of the price per litre is for oil, an element of it pays for wages, rent ect...

So if the price of a barrel falls by a third, the price of litre wont fall by a third. I do agree on the rip off, stations seem to increase the price faster then they decrease it.

cml387

I heard on radio last week that if a barrel of oil was free, the pump price would be 80c.

penexpers

cml387 wrote: »

I heard on radio last week that if a barrel of oil was free, the pump price would be 80c.

That sounds about right - most of the cost for a litre of fuel is Government VAT/excise.

Climate Expert

penexpers wrote: »

That sounds about right - most of the cost for a litre of fuel is Government VAT/excise.

Its something like that but I don't think its that high. We were getting it for 80c a litre only a few years ago.

In america the barrell/pump relationship is linear enough. Thats why they were going beserk when the price quadrupled.

snubbleste

Tax (excise duty & VAT) is by far the single largest component of the pump price.
Following the Budget of 14 October 2008, the excise duty is set at
50.88 cent per litre for petrol and 36.81 cents per litre for diesel (both excluding VAT).
The levy imposed by the National Oil Reserves Agency on petrol and diesel is 1.00 cent per litre for both diesel and petrol.
After excise and the NORA levy have been imposed, VAT is then added at 21% (but this changes to 21.5% on 1 December 2008).

Taken from an interesting article 'What determines pump prices?' sponsored by the irish petroleum industry association
http://74.125.77.132/search?q=cache:WgUcpDeTnHEJ:www.ipia.ie/Issues/upload/What_determines_pump_prices.doc+petrol+price+%2B+government+tax+%2B+ireland&hl=en&ct=clnk&cd=17&gl=ie

Guy:Incognito

Theres also the fact that even if they are getting oil for free, then can sell it for €200 a litre. They are businesses and can sell their goods at any price they want.

Sponge Bob

KStaford wrote: »

But surely we should be shouting loudly about it. How come it snot more of a media issue?

Well it is because the competition authority had no luck proving there was a cartel in Galway some years back, they never got any of the main players properly , the fines were what they make in a week . The investigation cost about €450k

http://www.algoodbody.ie/ezineeu/article.asp?34+181

Director of company in Galway heating oil cartel fined €10,000
A former director of Corrib Oil Company Limited and chairman of the Connacht Oil Promotion Federation was given a 6 month suspended sentence and fined €10,000 in the Dublin Circuit Criminal Court on 23 January 2007 for his participation in the Galway home heating oil cartel. The Mayo businessman pleaded guilty to aiding and abetting Corrib Oil to enter into price fixing agreements for gas oil and kerosene. Corrib Oil was also fined €15,000. Corrib Oil is a Shell oil distributor in Galway, Mayo and Roscommon with about 55 trucks and 103 employees. Evidence given in court confirmed that, at the time of the cartel, it had about 20 trucks and 30 employees.

This made the main players much more confident

darc

KStaford wrote: »

So the wholesale price of oil is currently a mere third of what it was a few months ago (hovering around €50 a barrel.

1. The price is not being reflected properly at the pumps and the rate at which the price is dropping is arguably too slow.

The price per barrel is the price of the raw unrefined product that comes out of the ground.

costs - Refining the product, delivering the product to port, storing the product, delivering to retailers, paying rent for stations, paying staff & utilities, duties, & vat.

In a nutshell, 50c of petrol is duty & vat on duty, 15c + VAT is distribution cost, retailer margins etc. - Only the balance is the cost of the petrol. In today market that is approx. 25c + VAT (based on 99.9c per litre).

Current world market price for refined gasoline (unleaded petrol) is 23.3c per Litre. ($1.10 per US Gallon which is 3.8 litres - currency @ $1.25 to €1)Expect a drop to about 98c in 2 weeks.

KStaford

Deleted User wrote: »

Petrol stations are as close to perfect competition as it gets...

emmet,
Perfect Competition refers to a state where no buyer or seller has power, where the product/service traded is the same, where there is complete knowledge (things such as price transparency) and where entry to the market is easy. These conditions would also be mirrored throughout the supply chain.
I would argue that in the case of petrol stations, not all these conditions are met. e.g. the average person doesn't know the wholesale price of fuel. Also further up the chain there exists an oligopoly. Also, the buyers (us) have little power in that there are few alternatives to allow us to move. I would argue that it is infact far from perfect competition.

gerrycollins wrote: »

Many petrol stations owners do not reduce the price of their petrol until they buy the cheaper stuff themselves hence why some country stations are very high priced, low turnover, apart from the lack of competition.

gerry,
I would argue that in a lot of cases, the opposite actually applies. In Galway for example, the usual unspoken "Town Cartel" applies where every station charges the exact same high price. Out the country, my local station is a few cents lower. This was also the case when I lived outside Sligo. Also, a lot of well known very busy town stations have the ighest prices consistently while they have a huge turnover. I know alot of stations that order oil 1-2 times a week. Their pricing suffers the same inertia that I spoke of initially. If they're turning over the stuff that quickly, they should be passing on savings to us in a timely manner.

mgsrocks wrote: »

Just to point out, not all of the price per litre is for oil, an element of it pays for wages, rent ect...

mgsrocks
Of course there are other substantial costs involved in supplying oil. My argument here is that we seem to suffer an almost immediate and correlated effect at the pumps when the barrel is increasing, but during a price decrease, the effect at the pumps seems to be much slower and only about half as effective in terms of the correlation.

gerrycollins wrote: »

The only problem here is that these companies hedge their bets and buy when they think the price is at a reasonable price for the foreseable future.

gerry, I realise that hedging is a standard approach, most airlines do it, the energy compnies etc. But they spread the costs out over fiscal periods (quarters, bi-annually and annually). So let them hedge right now or wait another month and then hedge, and then pass the savings on to us. Do you think they will ? Do you think the regulator will make them ??

gerrycollins

I think the surge in oil prices over a 6 month period during the year prevented the spreading of the price because the pricing was so voitile.

So certain companies took advantage of that saying it was going to stay so high for a while etc I dont think anyone predicted the extent of the downturn it suffered.

As for the petrol companies the pricing you hear quoted for is for next month and is subject to the the dollar and many other variables. Remember 6 months ago the euro was to $1.60 whats it now $1.25? that has to affect the end user price.

As for your post regarding petrol station locations vs pricing I agree,the Galway cartel is of course the most famous but look at the station when it was statoil on Ushers Quay(i think) in Dublin it was selling fuel at 10c, if not more, above everyone else! why No competition for miles around.

At the end of the day the price is set by the retailer usually based on local competition so while it can look like a cartel in operation, why should I not sell my product at the same price they are if they are getting away with it. its called greed.

parsi

KStaford wrote: »

Also, a lot of well known very busy town stations have the ighest prices consistently while they have a huge turnover. I know alot of stations that order oil 1-2 times a week. Their pricing suffers the same inertia that I spoke of initially. If they're turning over the stuff that quickly, they should be passing on savings to us in a timely manner.

Why ?

If they have such a high turnover at the high price why would they bother lowering it ?

If the petrol stations are greedy then we have to share the blame for being too lazy to go to the cheaper guys. Here in Cork there are a few stations which are consistently cheaper - they are busy. They would be busier if guys didn't go to the dearer stations 500yards down the road.

Danno

I find the quality of fuel varies too... watch them MPG folks. The cheaper fuel does not always drive far either.

ytpe2r5bxkn0c1

juuge wrote: »

In my area in Wicklow there are five petrol stations all within about six miles of each other and each are a different company, Maxol, Texaco, Toughers and Topaz. All are charging exactly the same price for both diesel and petrol.
As all are different companies/franchises with different overheads, costs etc it's amazing how they can all arrive at the same price 'exactly'. Looks like 'price fixing' to me !
I contacted the competition authority...

They may all charge the same price but it's due to competition not price fixing. There are 3 garages together on my route to work. One always leads the way with price drops and the other two are forced to follow within hours. Competition!
The price of a Litre of petrol is affected certainly by crude prices but not on a pro rata basis. Refining costs, government duty, wholesalers costs, retailers margin etc remain relatively constant so you can't expect prices to mirror the price of crude on the market today even if it was for immediate delivery let alone for 3-6 months time.

ytpe2r5bxkn0c1

KStaford wrote: »

emmet,
My argument here is that we seem to suffer an almost immediate and correlated effect at the pumps when the barrel is increasing, but during a price decrease, the effect at the pumps seems to be much slower and only about half as effective in terms of the correlation.

I have actually kept note of rises/falls in fuel prices versus market trends and you used the word seems which just about covers it. It is a perception that is wrong. For example the fulel prices here fell 4 times in the past 3 weeks and by a total of 14%. While market prices fell by a greater percentage you have to allow for all the fixed costs associated with the industry. This reflects favourably with the rate of price increases a few months back. Keeping in mind the recent Government 8bcent on petrol, the current prices are reasonable for the market cost of a barrel compared to even 3 years ago.

Shelflife

you have to remember that the filling stations are making approx 3-5 cents per litre gross. if you pay by credit card that takes 1.5--2.0 cents off that.

its not the stations you should be looking at its the oil companies that supply them.

ytpe2r5bxkn0c1

KStaford wrote: »

...I would argue that in the case of petrol stations, not all these conditions are met. e.g. the average person doesn't know the wholesale price of fuel...

You amaze me! You know that the average person is party to wholesale prices in all sectors of the market where competition exists! Does the average person know the wholesale price of eggs, the prime cost of providing a hotel room, the wholesale price of baked beans? How about the manuyfacturing costs of products, least the wholesalers are operating a cartel before the retailers? Come off it.:mad:

KStaford

Aiden Long Quagmire wrote: »

You amaze me! You know that the average person is party to wholesale prices in all sectors of the market where competition exists! Does the average person know the wholesale price of eggs, the prime cost of providing a hotel room, the wholesale price of baked beans? How about the manuyfacturing costs of products, least the wholesalers are operating a cartel before the retailers? Come off it.:mad:

do you work for the oil companies ? gosh I'm so sorry to have upset you so much. (I was just making a point about the economic notion of "perfect competition" using a list of criteria, what you picked up on here was the least signifigant item).

The primary response to my post seems to be that I am being unfair in my analysis of the current state of petrol/diesel pricing.
so great, we're all getting out fuel dead cheap'n sh1t. let the good times roll eh

ytpe2r5bxkn0c1

KStaford wrote: »

do you work for the oil companies ? gosh I'm so sorry to have upset you so much. (I was just making a point about the economic notion of "perfect competition" using a list of criteria, what you picked up on here was the least signifigant item).

The primary response to my post seems to be that I am being unfair in my analysis of the current state of petrol/diesel pricing.
so great, we're all getting out fuel dead cheap'n sh1t. let the good times roll eh

No need to get knarky! Of course I don't work for an oil company! Why do people assume if you disagree with them or clarify a position that you have a vested interest? You raised the matter of competition & cartels and although it was explained to you you insisted it was not true competition. All I pointed out was that your criteria for competition was deeply flawed. You should study some economics before creating your own definitions.
Who said we were getting our fuel chaep? All that was done was to explain the market mechanism.

KStaford

Aiden Long Quagmire wrote: »

Come off it.:mad:

followed by

Aiden Long Quagmire wrote: »

No need to get knarky!

Aiden Long Quagmire wrote: »

All I pointed out was that your criteria for competition was deeply flawed. You should study some economics before creating your own definitions.

I have studied Economics at Masters level, my definitions above are academically sound and widely used.

ytpe2r5bxkn0c1

KStaford wrote: »

I have studied Economics at Masters level, my definitions above are academically sound and widely used.

Brilliant! Someone like myself!
In that case, which form of competition do you believe is realistically viable for the Petrol retail business? Perfect, imperfect, destructive, co-operative...?


As the structure of a market is determined by four different market characteristics: the number and size of the firms in the market, the ease with which firms may enter and exit the market, the degree to which firms' products are differentiated, and the amount of information available to both buyers and sellers regarding prices, product characteristics, and production techniques: discuss with an emphasis on the Fuel retail business in Ireland.
As an M.E. or M.A.(Econ) surely you were aware the pump price of petrol is determined by more than the quoted trading price of a barrell of brent crude. You would also be aware of the lead-in times from hedge to consumer and the difference between competetion pull on prices and price fixing.


Edit:typo

KStaford

Aiden Long Quagmire wrote: »

Brilliant! Someone like myself!

I wouldn't say you and I are anything alike, and my days of taking essay assignments are almost over.

ytpe2r5bxkn0c1