Price stickiness on the forecourt

The AA isn’t happy. Standing up for hard pressed motorists is part of its daily remit and their latest salvo is directed at the petrol retailers for failing to pass on reductions in the price of crude oil on world markets to drivers who have been getting used to spending over £75 to fill up their tanks. Oil prices are indeed on the slide - how much further can the declines go? Will speculative activity accelerate the decline towards $110 or lower? But the AA claims that the major petrol retailers have been slower to reduce prices than they were to raise them when the cost of crude was heading northwards. Edmund King is reported in the Telegraph as saying “We calculate that retailers should be cutting a penny a litre off diesel and petrol with each two dollar fall in oil prices. The AA calculates that this should have meant petrol falling from 119.7p to 106.2p a litre and diesel dropping from 133.35p to 119.75p. Instead the latest pump price for petrol is about 115.25p, while motorists are still paying 128.42p for diesel.”

Inevitably there are time lags between changes in crude prices on global markets and the price we pay for petrol. Expect the supermarkets to move things along in the next couple of weeks with another bout of vigorous price competition. Profit margins for retailers of petrol and diesel are actually wafer thin - most of the money is made at earlier stages of the supply chain from oil exploration and refining.

Chart Petrol_Diesel_Prices.ppt