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PRA describes RAC diesel accusation as nonsense

25 March, 2015

The PRA has reacted furiously and accused the RAC of an alarming lack of research after it claimed retailers are profiteering on diesel and taking high margins because much of the diesel sold is to business users who are less price sensitive.

RAC fuel spokesman Simon Williams said: “It’s hard not to think that business is being taken for a ride by the fuel retailers. Traditionally, business runs on diesel, and with sales of diesel at an all-time high the retailers have maintained a higher margin on diesel, perhaps to subsidise petrol sales.

“While clearly some businesses with big, high mileage fleets buy their fuel ahead of time to manage their fuel spends in case of price fluctuations, the prevailing view is that businesses are less price sensitive than consumers which possibly leads retailers to keep margins higher on diesel than petrol.

“The gap between the wholesale price of diesel and petrol has narrowed to just 1ppl yet average forecourt prices are currently 6ppl apart. With sales of diesel at such buoyant levels there is scope for a diesel price cuts of around 4ppl to restore some parity to the market and redress many retailers’ decision to subsidise the petrol price with savings in the cost of wholesale diesel.

But PRA chairman Brian Madderson said: “They haven’t done their homework at all. These comments fail to acknowledge the increasing impact of fuel cards, which are used by a significant number of businesses, and that means they are complete nonsense. This highlights the alarming lack of research by some motoring organisations.”

He said that transactions made on fuel cards in the UK will mainly be diesel due to the tax incentives. The total UK fuel card market is now worth over 8 billion litres per annum.

The HGVs and other business vehicles that utilise some form of bunker card will be purchasing fuel not at pump prices, but typically at prices based on a Platts-related weekly lagged rate, plus a small handling fee for the retailer - often less than 1ppl. Experian Catalist has advised PRA that over 70% of high-speed offset diesel pump facilities for HGVs, large vans and buses are located on independent forecourts. Most of this traffic will be purchasing with fuel cards.

Many LCVs (light commercial vehicles) and company cars will be also be utilising a fuel card based on Platts-related pricing. One major oil company recently confirmed to the PRA that the vast majority of its card customers purchase fuel on a Platts-related basis (not at full pump price).

Madderson continued: “Due to the way that fuel cards work, the majority of transactions are re-purchased at an agreed rate and the retailer then receives a ‘card commission’ for that transaction. Rates for fuel cards have not significantly changed since the schemes started some 25-30 years ago, and the margin returns back to the retailer for the fuel transaction are minimal.

“Therefore the independent retailer often selling up to four grades of road fuel, has to obtain a financially acceptable average margin to ensure that the business is producing sustainable returns.

“Currently the margin available on petrol is extremely low - and so higher margins may be taken on diesel after adjusting for the severe margin depressing effect of fuel cards to the independent retailer sector.”

Keywords: PRA, diesel, RAC, pricing




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