Claims that heating oil suppliers were profiting from sharply rising prices prompted a high-profile competition investigation earlier this year. Its conclusions paint a rather different picture – but changes to consumer protection are still likely to follow.
East crisis earlier this year, the impact was felt quickly by the 1.5 million UK households that rely on the fuel.
It also generated considerable political and media attention. Amid accusations that suppliers were taking advantage of the situation, the Government asked the Competition and Markets Authority (CMA) to investigate the heating oil market.
For installers, who are often a trusted source of advice for customers and may well have faced questions about the price increases themselves, the CMA’s final findings provide some useful context.
Heating oil prices rose rapidly as the conflict disrupted international energy markets and tightened product availability.
Average prices increased from around 64p per litre to 104p, before reaching 123p in April. Inevitably, such large increases prompted concern about what was happening further along the supply chain and whether distributors were increasing their margins at customers’ expense.
The resulting investigation was announced against a highly charged backdrop. As OFTEC chairman Neil Sawers reflects in his foreword to this issue, the speed with which allegations of price-gouging became part of the wider political debate raised questions about whether the conclusions were being anticipated before the evidence had been examined.
The CMA’s findings are therefore significant.
Its conclusion was that the home heating oil market is “generally competitive” and that distributors did not materially profit from the crisis.
The CMA found that the overwhelming majority of the price increase was caused by higher wholesale costs, combined with additional operating costs as supply became tighter – including longer journeys to collect fuel and increased haulage costs.
Distributor margins did rise slightly during the period of exceptional demand, but the CMA concluded that the impact on customer prices was limited and that margins soon returned to normal seasonal levels.
It also found that most customers have a good choice of suppliers and a high level of price transparency.
In other words, the investigation did not substantiate the original claims that the distribution sector had used the crisis as an opportunity to generate excessive profits.
The CMA did identify an area where it believes customers need greater protection.
Around 1,700 confirmed orders were cancelled as prices increased. This represented only a small proportion of the overall market and involved a relatively small number of distributors, but some affected customers subsequently had to reorder their fuel at a higher price.
Several suppliers have agreed to compensate affected customers, with further discussions continuing where compensation may still be required.
It is this issue – rather than the competitiveness of the wider market – that is likely to shape what happens next.
The CMA has recommended stronger safeguards for customers during periods of exceptional market disruption.
Rather than introducing a heating oil price cap, it wants governments and consumer organisations to work with industry bodies, including UKIFDA and the Northern Ireland Oil Federation, to strengthen existing consumer codes and improve access to dispute resolution.
The UK Government is expected to respond formally to the CMA’s recommendations.
For installers and their customers, the central message from the investigation is perhaps the simplest one: the extraordinary heating oil price rises seen earlier this year were principally the result of exceptional international market conditions, rather than industry profiteering.
There are lessons to be learned about protecting customers during severe market disruption, but the CMA’s findings also show that the claims of profiteering and price-gouging that prompted the investigation were unfounded.
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