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Economic Environment of Business: the UK Petrol Sector Report

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Updated: Jun 4th, 2020

The sales and the structure of the UK petrol sector

Before getting down to the discussion of the sales and the structure of the UK petrol sector, it is important to point to the fact that the market share of the UK petrol is divided between many different companies. Pointing only to the oil and gas companies which play great role at the UK petrol market and can influence the industry development, it is possible to consider such companies as British Petroleum, BG Group, Cairn, Perenco, Tullow Oil plc, ExxonMobil in the UK, etc. Existing in the imperfect competition and with the constant raise of prices on petroleum, the companies experience some difficulties. The problems at the petrol market are increased by the increase of the VAT from 17.5% up to 20% (‘Petrol price to hit £1.26p’ 2011). The general conditions on the world market make the companies increase its prices. The increase of VAT will also lie on the consumers.

 Current UK Petrol Pump Prices (2011)
Chart 1. Current UK Petrol Pump Prices (2011).

Looking at the chart above, the tendency of prices on fuel in the UK may be considered. The prices began to raise extremely in the beginning of 2010 after the reduction of price at the end of 2008 and the beginning of 2009. These are the prices at the petrol pumps. The rise of prices is unavoidable for retailers who can do nothing along with the rise of the VAT. The demand for falling in price in the UK is appropriate. If to consider the European situation, the prices on fuel reduced there. The same should be done in UK (Wallop 2011). To consider the trends in sale and price change, the specific company should be explored.

BG Group reserves and resources (BG GROUP PLC 2011)
Chart 2. BG Group reserves and resources (BG GROUP PLC 2011)

BG Group is a UK company which operates in about 25 countries all over the world. The total reserves of the oil the company produces increase that leads to the increase of the production of unreserved oil. If to check the following chart (Chart 2), it may be seen that the volume of the production of the risked exploration increases with years and the next year this volume of production becomes either reserved or un-booked but still expected to be bought. The raise of the prices of fuel in the middle of 2008 (Chart 1) make the company have some reserves which may be necessary when the prices on fuel increase. These reserves may help BG group regulate the prices and do not increase those immediately.

The chart 3 shows the stock of fuel BG Group has been providing during the last five years, since May, 2006. Comparing and contrasting two diagrams, chart 1 and chart 3, which indicate prices and stock on fuel, it is possible to see the dependence of the volume of stocked fuel on the price. The higher the price, the more stock the petroleum companies have.

Stock for BG Group (Data Book 2009)
Chart 3. Stock for BG Group (Data Book 2009)

Dwelling upon the change of price, it is impossible to avoid the political conditions which influence the industry. The political problems on the East were one of the reasons for the increase of the prices on oil and petrol at the international market. The output of the petrol in the UK companies has been influenced by this event. Moreover, the increase of the VAT also mad the companies raise the price of petrol. Thus, the customers have either to consume the oil products by the offered price or wait for the price reduction which is possible due to the change in the budget.

Thus, it may be concluded that the trends in sale in UK depend not only on the national factors, like the change of the VAT, but also on international. The problems in the world influence UK with the same strength as the other European countries. The increase of the stock is explained by the increased prices. Moreover, it is important to mention that the world problems are supported with the national complications in the UK.

The supply of petrol in the UK

There have often been suggestions that the supply of petrol in the UK be referred to a “competition agency” such as the Competition Commission or Office of Fair Trading. To answer the question why it has been so, it is necessary to point to the central ideas of these agencies. Both the Competition Commission and Office of Fair Trading are aimed at the market analysis and regulation of the competition to make it healthy and fair. Under the competition laws, the companies, especially those which deal with fuel, have to compete fairly. The violation of the competition law may lead to the intrusion of either the Competition Commission or Office of Fair Trading. The regulation of prices and the fair circumstances for all companies are regulated by these agencies in the UK.

The intrusion of such agencies may be extremely important in the contemporary situation when the prices on fuel constantly increase. The absence of the regulation may lead to unpredictably high prices on fuel and the inability to influence the situation. The situation in the UK is rather sharp and tense. As a result, the law violation has occurred. It is possible to check the case when bunker fuel firm CH Jones violated fair competition proclamation and tried to implement its own rules at the current UK oil market. CH Jones tried to use its dominant position at the UK fuel market for reducing such companies from the market as UK Fuel and PAYG cards.

Working with payment cards under the brand “Keyfuels”, the company specializes on serving the oil companies which make orders in advance. Working according to the direct bunkering system, the company tried to make agreements with some specific bunker fuel sites using another strategy. As it has been mentioned above, one of the main reasons for such unfair actions was to make competing companies which work on the cards basis as well close their companies as unprofitable (Berwin’s EU & Competition Team 2011).

It is impossible to quarrel that CH Jones has dominant market position due to its specific function for the economy of its country, but, at the same time, the abuse of the domination is prohibited under the anti-competitive agreements which have been signed with the emergence of OFT. The existence of the competition agencies which follow the fair relations on the market makes it impossible to monopolize the fuel industry. The monopolization of the UK fuel industry should not be allowed, as in this case it will be difficult to control the process. Moreover, the appearance of new companies in the industry will be reduced to minimum.

Looking at the present situation with the supply of petrol to the UK, it is possible to say that if the prices are not regulated, the OFT should interfere. There are no set prices in the industry for now and the government along with OFT or Competition Committee should make all possible to regulate the situation. The world market and economy influences the process in the United Kingdom. But, if to consider the situation in the Europe, it is possible to see that most of the countries have managed to regulate this process with the help of government support. The supply of petrol in the UK and European countries is provided on the same conditions, to regulate the situation, the competition agencies should interfere.

Thus, it may be completed, that the UK, like other countries, cannot exist without Competition Policy. Unfair competition may lead to the monopoly or even oligopoly on the fuel market. The inability to control prices can lead to the raise of the latest greatly under the current circumstances. Moreover, the entrance of the new participants on the market is either too complicated or even impossible as the companies on the market do not need competitors. Therefore, the competition agencies are required to regulate the prices.

Reference List

Berwin’s EU & Competition Team 2011. ‘OFT issues Statement of Objections alleging abuse of dominance by bunker fuel firm CH Jones’, Community Week, iss. 511.

(BG/:London) 2011, Bloomberg Businessweek, Web.

2011, UK petrol and fuel prices, Web.

Data Book 2009, BG Group, Web.

2010, This is money, Web.

Wallop, H 2011, , The Telegraph, Web.

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IvyPanda. 2020. "Economic Environment of Business: the UK Petrol Sector." June 4, 2020. https://ivypanda.com/essays/economic-environment-of-business-the-uk-petrol-sector/.

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IvyPanda. (2020) 'Economic Environment of Business: the UK Petrol Sector'. 4 June.

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