Rip-off at the petrol stations?

Although the price of crude oil is falling, fuel prices at petrol stations are not following suit to the same extent. Research shows that oil companies are making generous use of their leeway.

The phenomenon was last observed this week. On Tuesday, the price of Brent crude oil temporarily plunged below $100 per barrel. This corresponds to a price slump of almost 10%. And at the petrol pumps? According to TCS, petrol and diesel cost three Rappen (Swiss Franc cents) less per litre on Wednesday. A reduction of two Rappen came along on Thursday. But, obviously, the reduction on the crude oil price isn’t matched to the same extent at the petrol station – otherwise the price of petrol would have had to fall by about 20 Rappen.

While this decoupling of petrol prices from crude oil prices, as well as presumably record-high refinery margins in Germany, have already attracted the attention of Stefan Meierhans, the price supervisor, the other price mechanisms in the fuel market are basically known. For example, the Avenergy oil association calculates that, at a price of CHF 1.86 per litre of lead-free 95, almost half of this is attributable to taxes and duties, 34 % to purchasing costs and 17 % percent to the profit margin of the oil companies.

Prices already rose last year
The price of CHF 1.86 per litre and the profit margin is merely intended as an example here. Drivers are currently digging much deeper into their pockets. According to the Touring Club Switzerland (TCS), on Friday a litre of unleaded 95 cost a total of CHF 2.22, while diesel costs CHF 2.36. Energy prices have already skyrocketed in the past year, and have exploded since the Russian war of aggression on Ukraine.

It is suspected that the oil lobby is using the situation to raise prices more than would be justified by the increased procurement costs on the energy markets. In Germany, where politicians have also introduced a so-called tank discount, this question is currently being clarified by the Federal Cartel Office (Bundeskartellamt).

Cost of a barrel of crude oil has dipped below $100
The fact that the prices for crude oil and petrol do not evolve at the same rate is due to the fact that they are completely different products. Complex work steps are necessary before crude oil becomes fuel for the car. And it’s not so much the price of crude oil that is decisive for the prices at the gas station, but the price of processed fuels on the commodity exchange.

Every Rappen counts: prices at the pump have fallen since Wednesday
Swiss fuel prices in 2022 (CHF per litre) and a breakdown of the cost: 49% taxes and charges, 37% sales costs and 17% profit margin.  

The so-called "Platts" quotes in Rotterdam are important here. A sharp increase in demand or the limited capacities of the refineries can drive up prices here. "Speculation often exacerbates fluctuations on the stock markets, including product prices," explains TCS spokeswoman Sarah Wahlen.

It takes time for price reductions to reach customers
The price of petrol is therefore not directly related to that of crude oil, and it is influenced by other cost blocks, such as shipping and domestic distribution, the prices of which can also fluctuate. Nevertheless, the question remains as to how quickly price corrections at the petrol commodities exchange or other price elements will reach consumers at the petrol station.

The situation of the providers plays a role here. "The price calculations of fuel suppliers in Switzerland are usually based on the replacement value for the goods," says TCS spokeswoman Sarah Wahlen. Around three-quarters of the fuels are imported by Switzerland as finished products, while the rest is supplied by the only refinery in Switzerland, in Cressier, Neuchâtel. From the provider's point of view, it makes sense to only pass on price reductions when you have bought, or have the certainty that you can buy correspondingly cheaply, she adds.

This means that if a supplier has stocked up at the higher prices, he will wait until he can buy at better terms, and will only then pass on the lower prices.

So much for the theory. In practice, it can be seen that the oil companies are making a quite generous use of their leeway. Remarkable results were provided by a study by the Austrian competition authorities in 2008. According to this study, Austrian petrol stations already passed on the higher prices for a litre of Super on the commodity exchange "on the 1st or 2nd subsequent day, while the price reduction were only passed on after the 4th day".

Consumers therefore had to wait up to three days longer for the price reduction than for the price increase. In the case of diesel, the downward correction took place after three days. "The situation in Switzerland may be about similar," says the TCS spokeswoman.

Petrol prices fell sharply in March
Even though petrol and diesel prices have their own price mechanisms and do not converge to the same extent, the cost of a barrel of crude oil on the world market still roughly sets the direction. Between March 8 and 16, the price per barrel fell from $129 to $97.4. The prices for fuel in Switzerland followed this fall.

"In March 2022, the prices of unleaded 95 and diesel were reduced by 19 Rappen per litre in just about six days. We'll see how long it takes this time," says the TCS. "There are some petrol stations that are always the first with the price changes, but when the price change process gets underway, the other petrol stations usually react quickly."

Everyone in the industry sees themselves as pioneers when it comes to passing on the lower prices, of course (!?). "The price increase as well as the price reduction will be passed on to customers in the same way," says a spokeswoman for Coop Mineralöl. And: "The margins at Swiss petrol stations are in line with recent years."