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Friday, 15 September, 2000, 18:03 GMT 19:03 UK
Oil companies: where to next?
A woman fills a car with fuel.
Oil companies may have to raise pump prices soon
As UK fuel supplies begin to flow again and fresh price rises are reluctantly reversed, the big oil firms are left pondering their next move.

If they are struggling to make profits from petrol sales but cannot raise forecourt prices any higher, what are they then to do?

For the moment at least, the answer appears to be to sit tight.

Most oil companies have kept a low public profile throughout the fuel crisis and done little to quash suspicions that they enjoyed the government's discomfort and failed to get the tankers rolling as quickly as they could.

Ill-judged attempts

In the short term, analysts say the companies are likely to keep their heads below the parapet, particularly in light of the spectacularly ill-judged attempts by some of their number to implement fresh price rises.

On Thursday, it emerged that three of the UK's largest petrol retailers, Esso, TotalFinaElf and Conoco - owner of the Jet network - had recently raised or were about to raise prices by about 2p a litre for unleaded petrol and 4p a litre for diesel.

All three companies were quickly forced into embarrassing climb-downs following a chorus of condemnation from the government and motorist groups. But, significantly, not one of the firms appeared to accept that the price rises were not justified.

Esso and Conoco expressed regret at the timing of the rises and indicated that their decisions to reverse them were being made only in a spirit of goodwill while TotalFinaElf suggested that it was only backing down because of market forces - that is, the Esso and Conoco climb-downs were making its own new prices uncompetitive.

Little money to be made

The problem for oil companies - now widely accepted - is that there is little money to be made selling petrol in the UK.

This may seem surprising, given the high pump prices and the oil companies' huge profits overall.

Also, the situation is not the same in Europe, where taxes are lower and competition on the forecourts is less fierce.

But according to Esso, a retailer makes only about 5p for each litre of unleaded petrol sold for 84p, with the remainder accounted for by duty, VAT and the cost of production.

Intense competition

This 5p has to cover the cost of transporting the product from refinery to distribution terminal, storage and processing and onward transportation to the retail outlets.

After that, the retailer has costs including credit card charges, which alone work out at more than 1p a litre, according to Esso.

Intense competion among retailers in the UK over several years has now squeezed margins to the point where they barely exist.

On Thursday, Shell and BP both said they had no plans to raise pump prices.

But, looking beyond the immediate future, the oil companies might feel they have little choice.


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