From a peak in July last year of 131.6ppl for unleaded petrol and 136.1ppl for diesel, plummeting oil prices for the next six months brought pump prices down to 106.4ppl and 113.4ppl respectively by the start of February. A slight recovery in prices pushed them back up to 117.2ppl and 121.0ppl by June, before diesel took another nosedive falling below petrol for the first time in more than 14 years, reaching 111.7ppl by the middle of August compared with 114.8ppl for petrol.
PRA chairman Brian Madderson says diesel prices have been affected by a "tsunami" of low-priced imported product, but with massive oversupply of petrol in the UK and Europe, the wholesale price of petrol does not make sense.
He explains: "I am concerned the normal laws of supply and demand seem to be standing on their head. I would have expected gasoline to fall quite sharply because of over-supply and declining demand, and I would have expected diesel to at least remain stable or have gone up because of increasing demand.
"I wonder about the methodology used by the companies involved with reference prices for refined fuels, and whether the methodology is still fit for purpose. For instance, if the reference prices are based on shiploads or barge loads of fuel being moved about, how does that take into account inland transfers of fuel at much lower prices? If a UK refinery is selling to one of the big UK supermarkets at a very low price, how is this reflected in the general wholesale price? The supermarkets could be operating outside the market that the independents have to live with."
Madderson says that the wholesale market and pricing have to be more transparent. He adds: "It is worrying to see the big juggernaut supermarkets with fuel competing against each other like lemmings again.
"It is quite clear that either they are taking a loss if they are buying at the same wholesale price basis as us, or they are not buying at the same wholesale basis as us, at a price outside the methodology, which seems totally unfair."
Petrol versus diesel
Whether the sudden fall in diesel prices is a temporary blip, or something that's longer-term, sales of diesel have been growing steadily for over a decade while petrol has declined. In the retail market last year, just under 17bn litres of petrol were sold, compared with 18bn litres of diesel (with an additional 10bn litres of diesel in the commercial sector).
Sales of diesel were up 3% on the previous year and petrol down by 1.5%. This trend has been driven by the increase in diesel cars, up from about 10% of the UK fleet in 2000 to 52% now. Diesel has been perceived as more economical than petrol for higher mileage users and a fall in prices could make it more attractive still.
Ramsay MacDonald, retail director, Certas Energy, says: "Barring a change in legislation, diesel will continue to grow for the next few years at least. It does appear that petrol sales will continue to decline and it is therefore important for dealers to review their tank layouts to ensure that their tank farm and pumps map the sales mix."
However, Madderson warns that if the market moves more towards diesel then a danger for dealers is the growth of fuel cards. He says: "We have examples of some members with local account business where the customer has swapped to a fuel card and instead of the dealer getting 5ppl margin, he is getting 1ppl. So that trend is a real worry for independents.
"Independent operators' margin base is being fundamentally eroded over a period of time so one might expect, at some stage, that more group companies may follow Applegreen and refuse to handle fuel cards on the basis that they don't bring in commensurate rewards for the retailer."
Andrew Owens, chief executive of Greenergy, says the growth of diesel also has implications for suppliers. He explains: "Increased diesel demand will increasingly be met through imports, rather than through domestic refinery production, so those suppliers with import infrastructure will play an increasingly important role in meeting future demand. Deep-water import terminals the only diesel ones in the UK being at Greenergy North Tees, Puma's Milford Haven and, in the future, Thames Oilport provide a cost advantage by allowing diesel to be imported on large ships direct from the lowest-cost global producers.
Security of supply is something highlighted by Andrew Cox, director of sales and marketing at Valero UK. He says: "Research tells us that a secure and reliable fuel supply is one of the most important factors to a retailer when they look to renew their fuel supply agreement or change their fuel supplier. Valero offers an industry-leading supply and distribution service. It is an area in which we have invested to ensure we continue to offer the highest standard of service. As well as re-opening Manchester Terminal and the Manchester-to-Seisdon leg of the Mainline pipeline, Valero last year announced a multi-million pound project at Avonmouth Terminal to expand storage capacity.
"Valero Logistics UK will triple capacity at its fuel terminal in Avonmouth, making all grades of fuel available and further improving the supply position for retailers in the area."
He continues: "As one of the UK's few refiner marketers, Valero, through its ownership of Pembroke refinery, Mainline pipeline and six equity terminals, has greater control over security of supply and the quality of the products it supplies to the network of 850 Texaco-branded retailers."
Madderson points out that as demand is increasing, the number of refineries and oil terminals is at an all-time low. He says the fragility of supply was demonstrated earlier this year when the Grangemouth refinery was partially closed for maintenance, and was relying on bringing in tankers of product. Bad weather prevented the ships docking and he says: "Within two or three days our members in Scotland were put on allocation and it could have become quite serious."
He adds: "It's a massive issue for this new government that I will be raising with the Energy Minister when I get to see her."
One area where dealers have a lead over the supermarkets is in premium fuel. Madderson says: "Premium fuels are important for a number of reasons: brand differentiation with the supermarkets which appears to work; it's good for consumers because they get better engine performance; and it's good for retailers because they get a higher margin than on standard products."
Jet has introduced one of the latest additions to the market. Guy Pulham, manager, regional sales of Phillips 66 UK and Ireland marketing, explains: "In May 2015 we launched Jet Sentinel diesel, our new premium grade diesel. Sentinel was developed in response to demand from our dealers for a premium diesel product to complement their existing fuels mix and also to meet customer demand for a premium diesel that delivers that 'little bit extra' in terms of efficiency."
Joseph Richardson, managing director of Jos Richardson & Son, which owns Jet's Filey and Primrose sites, comments: "It is a very important part of the sales mix. Even if customers are not premium fuel consumers, the fact that it is on offer creates an impression of quality for the brand and therefore the site itself.
"We already have several customers that are strong advocates of Sentinel diesel, commenting that their fuel performance is better than the standard grade. Of course, for the retailer the opportunity to make more margin per litre on a premium grade can add to the overall profitability."
Jim Mulheran at Top 50 Indie MFG, which has 68 Jet sites, adds: "Following the launch of Sentinel, MFG is busy reviewing the opportunities to install this premium diesel grade on its Jet-branded network." And MRH, which is number one in the Top 50 Indies, is also planning works that will allow it to accommodate Sentinel at its Jet-branded filling stations.
For Certas, Ramsay MacDonald comments: "Premium grade diesel and unleaded are really important differentiators. Premium diesel, in particular, is an area we are encouraging all customers to invest in and our Endurance brand is a key part of us driving this product forward.
"While the volumes are smaller, Endurance accounts for at least 10% of fuel sales for many Gulf dealers. Premium grades offer higher margins and that adds to overall revenues. Obviously each site needs to look carefully at its customer base. Certas Energy also supplies Gasoil to many customers, particularly in agricultural areas. This is a grade to consider for many sites and we have the expertise to help customers manage this or indeed kerosene."
Andrew Cox says Valero is seeing growth in the sale of Supreme grades across the Texaco-branded network, so it is important for all Texaco retailers to have the option to supply Supreme grades. He adds: "We actively work with our retailers to help them review their pump and tank configurations so that they can include Supreme grades in their sales mix. The growth in demand for Supreme products has been bolstered by motor manufacturers recommending the use of premium/high octane products for use in many premium and performance vehicles."
Valero has also introduced a number of marketing initiatives to help support the sale of Supreme grades, such as Star Rewards Triple Points, where customers can save 3ppl, and the introduction of new forecourt signage to promote Supreme products and drive motorists onto the forecourt.
E10 and alternative fuels
Finally, an issue of concern for many dealers is the push to launch E10 fuel onto the market, but Madderson says there are no signs of the oil companies wanting to introduce it or the newly elected government wanting to encourage them.
He explains: "Some of the resistance is because around 10-20% of the industry is not ready for it and it would hasten the demise of some of the smaller filling stations. With E10 they would have to decide whether they were going to stock it, because they don't have the pumps or the investment to stock two grades of gasoline, and the government understands that."
When it comes to alternatively fuelled vehicles (AFVs), such as electric and hydrogen powered cars, Madderson says it is currently a tiny market. Sales of AFVs were up 62% in the UK this year, but this is 37,903 out of total new registrations of 1.55 million and a UK total fleet of 32.6 million cars.
The government is committed to growing the number of AFVs, with support for electric charging points and a network of hydrogen fuelling points, but hydrocarbons are set to be the dominant fuel for many years to come.
Road fuel sales grew last year for the first time since the recession in 2008, according to UKPIA's Statistical Review 2015, reaching 44 billion litres.
It shows that petrol sales continued their long-term decline, dropping below 17 billion litres in 2014, but the 3% increase in diesel sales to exceed 27 billion litres maintained its growth of recent years, and was enough to reverse the annual decline in total road fuel sales that has occurred every year since 2007. The increasing demand for diesel has been driven by the growth in the number of diesel cars, with sales of diesel vehicles outstripping petrol ones for the first time in 2014 53% of new registered vehicles were diesel compared with 49% the previous year.
However, the report notes: "UK refineries, in common with those in the EU, were configured predominantly to produce petrol and therefore have a mismatch between domestic production and demand." With rising demand for diesel, the UK has a deficit of diesel, while it exports surplus petrol and fuel oil. Net diesel imports into the UK are currently 9.4 million tonnes per year