Competition conditions in the refining and wholesale of fuels – Bundeskartellamt presents final report on its sector inquiry

Risks due to price assessments – Limited alternative options for regional ex-refinery fuel procurement – Very frequent price changes at petrol stations.

The Bundeskartellamt has today concluded its sector inquiry into the refining and wholesale of fuels with a comprehensive final report. In its report, the Bundeskartellamt explains the structures and pricing mechanisms at these market levels of the mineral oil sector and identifies parameters which can be adjusted to strengthen competition. The Bundeskartellamt also looked at the effects of the frequent changes in fuel prices charged at petrol stations.

Andreas Mundt, President of the Bundeskartellamt: “The inquiry has once again shown that the conditions for effective competition in the German mineral oil sector are difficult. Germany is highly dependent on crude oil imports, the markets are characterised by vertical integration and interdependences between oil companies, and market transparency is high at all levels of the value chain.

The last amendment to the German Competition Act has equipped us with a new tool to take action in markets affected by a considerable malfunctioning of competition. Based on our inquiry, we have found indications of such a malfunctioning in the markets for the wholesale of fuels and we will examine whether to open proceedings, especially to analyse the risks associated with the price assessments widely used in the industry.”

The effect of price assessments on pricing

The inquiry has found that price assessments play an important part in pricing at several levels of the value chain. Already at international level crude oil sales are usually based on such price assessments. After the oil has been processed in refineries, the oil products are sold on wholesale markets mainly on the basis of long-term supply contracts (term contracts); the volumes traded on the spot market are much smaller. In most cases, the pricing of mineral oil products in term contracts is also based on price assessments; prices are calculated using the latest price assessment value at the contractually agreed time, for example the time of delivery.

The price assessments used in Germany are largely published by two price assessment providers that offer price assessments as a paid service to the industry. They base their calculations on the latest reports and information provided by market players and usually publish their daily price assessments at the end of the trading day. In some cases they also provide sensitive market information, such as on specific transactions. As a result of the inquiry, the Bundeskartellamt has gained insights into how price assessments are compiled and how these price assessment systems affect the industry. 

Andreas Mundt: “While we do not consider price assessments to be categorically anti-competitive, we have found that the way they are currently compiled poses considerable risks to competition. One is that the publication of very detailed market information creates additional transparency as to the pricing behaviour of individual competitors. This increases the risk of collusion, meaning the risk that market players could tacitly agree on a price level above the one that would have evolved in a competitive environment. In addition, there is a risk that individual market players may manipulate price assessments to their advantage, for example by selectively reporting data.”

The Bundeskartellamt’s final report also recommends that a stricter legal framework be introduced for price assessments in the mineral oil sector and proposes that the IOSCO Principles for Oil Price Reporting Agencies be revised.

Limited alternative options for regional procurement

The trade flow analysis has shown that commercial buyers of fuels and heating oil often depend on suppliers in their region. The mineral oil products produced in Germany or imported into Germany are sold either directly ex refinery or through wholesalers. Due to high transport costs and capacity constraints, it is often uneconomical to procure oil products from more distant suppliers, making it necessary to transport them over larger distances. While tank farms are used by market players for regional distribution and intermediate storage, the inquiry has shown that they are irrelevant when it comes to pricing. With only a small number of relevant fuel and heating oil suppliers in most regions, the options for traders to switch to alternative suppliers are often limited.

Increasingly frequent price changes at petrol stations

The number of price changes at petrol stations over the course of a day has continuously increased in recent years. While prices were changed around four to five times a day in 2014, the number of price changes already reached an average of 18 times a day in early 2024 and is still on the rise. The analysis of sales data provided by individual petrol stations indicated that motorists are now less likely to succeed in refuelling during so-called “price dips” than in the past.

The Bundeskartellamt’s president, Andreas Mundt: “The frequent price changes at petrol stations are making it harder and harder for consumers to compare prices using data from our Market Transparency Unit for Fuels and to adjust their refuelling behaviour to save money.” 

The Bundeskartellamt therefore suggests that the effects of the frequent price changes at petrol stations be further examined. Based on these examinations, adequate regulatory steps could then also be considered.

Background

The sector inquiry was launched in response to the fuel price developments immediately following Russia’s attack on Ukraine in February 2022. The subsequent sharp rise in prices, which were at times decoupled from the price of crude oil, was analysed in an interim report published at the end of 2022. The report looked at the production and cost-related conditions which caused the fluctuations in prices and at how the refineries’ capacities developed. The interim report also examined the extent to which the three-month tax cut on fuels introduced in summer 2022 had been passed on to consumers (the interim report (in German only) is available here).

The final report presented today is the result of the inquiry’s second phase. Taking a broader approach, it focused on the supply streams, contractual terms and pricing structures involved in fuel trading in Germany. For this purpose, the Bundeskartellamt had asked not only tank farm operators, wholesalers and petrol stations to provide information, but also price assessment providers.

The full final report (in German only) is available here; a summary is available here.