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Last Updated: Saturday, 17 September 2005, 12:41 GMT 13:41 UK
Oil giant Shell fuels price war
Petrol station in London
Petrol prices are retreating after peaking at the start of the week
Oil giant Shell has announced it is cutting its UK petrol prices to bring it in line with rivals, as a forecourt price war continues to hot up.

BP has said it also intends cuts, as Shell said its prices would fall between 4p and 2p a litre on Saturday.

On Thursday, Asda and Tesco announced a reduction at the pumps of 4p after wholesale prices retreated from a post-Hurricane Katrina high.

A spokeswoman for Shell said they were determined to remain competitive.

Shell, which has about 900 filling stations across the country, said the fuel reduction would apply to both unleaded fuel and diesel.

Small independents are the first to lose out
Ray Holloway, Petrol Retailers Association

Asda and Tesco were the first to cut the price of fuel, sparking an all-out battle between the industry's major players.

A litre of unleaded on Asda's 158 forecourts dropped to 89.9p, while diesel fell to a maximum price of 92.9p per litre.

In response, Esso said it would drop the cost of its fuel by 4p, while BP said reductions would be likely at its 400 company-owned stations over the weekend.

However, a spokeswoman could not specify how big they would be as they "did not have a national pricing policy".

Panic buying

The AA Motoring Trust welcomed the cuts, but reminded UK motorists they were still spending 7.5 million extra per day on petrol in comparison to figures for January.

A global oil shortage had already caused a massive price rise before Hurricane Katrina hit oil production in the Gulf of Mexico.

And earlier this week, anticipated demonstrations outside oil refineries - including Shell's facility in Jarrow, Tyneside - sparked panic buying as motorists rushed to fill up their tanks at inflated prices.

In the end, the protests attracted a low turnout and caused no disruption to supplies.

Chris Hunt, from the UK Petroleum Industry Association, said: "I think it is rather unfortunate that motorists filled up in panic buying when they will find it 4p cheaper now."

Ray Holloway, of the Petrol Retailers Association, said the price squeeze meant independent traders faced losing out once again.

"Small independents are the first to lose out when prices go up, as they need to put more money into their business," he said.

"Once prices fall, they lose out again as they have expensive stocks of fuel underground, which they need to make a margin on."

The latest cuts come as Sir Richard Branson said he planned to hold talks with the government about paying for a new oil refinery as a way of reducing his airline fuel bill.

He said there was an "enormous shortage" of oil refineries and said he was looking at building one.

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