UK Fuel Retailers Face Falling Petrol and Diesel Sales

As in the rest of Europe, service station operators in the UK have complained of falling petrol and diesel sales over the past six months. However, the UK has been particularly hard hit, and given that oil prices are likely to remain high and that drivers have necessarily become more aware of their fuel expenditure, UK fuel retailers may have to become accustomed to this falling demand.

Many European fuel retailers have reported a disastrous H1 2008, with high prices at the pump causing motorists to drive less. The UK appears to have been particularly hard hit, with some fuel retailers reporting a fall in sales of up to 20% over the last few weeks.

UK fuel retailers’ grievances have been reflected in official figures. In June the International Energy Agency reported that petrol sales may have fallen by as much as 20% over the last 12 months. The situation is similar on the continent: German fuel retailers have stated that overall fuel sales for June 2008 are down 8% on the previous year; while Finland has also reported falling sales of road fuel, with petrol volumes for the first half of 2008 down 5% on the previous year. Although falling petrol sales in Finland were partially offset by an increase in diesel sales, overall consumption is decreasing.

However, the trend witnessed by UK fuel retailers is slightly different, in that demand year-on-year has been fairly stagnant or has increased slightly. In many European markets, on the other hand, demand has been falling for several years. Indeed, while total UK service station fuel sales increased by an average of 1% annually between 2000 and 2007, sales fell by over 2% annually in Germany. France, Spain and Italy also saw declining sales over the 2000 to 2007 period.

There are several reasons why fuel volumes have begun to fall in the UK. Firstly, petrol prices have risen at a stronger pace in the UK than on the continent. Indeed, according to research from the Post Office Travel Services, the price of a liter of unleaded petrol in the UK has risen by 20% over the last year, compared to 14% in the rest of Europe.

Secondly, while these high fuel prices may indeed have encouraged motorists to seek alternative forms of transport, there is also the greater impact of a general decline in household spending. If consumers are spending less on goods and services, it follows that they will be leaving home less frequently. The UK’s Office for National Statistics reported that the year-on-year growth rate of retail sales volumes fell to 2.2% versus the previous year, and forecasts recently published by The National Institute of Economic and Social Research predict that consumer spending will contract in 2009 for the first time since 1991.

It seems that higher oil prices and the overall economic climate are set to reverse the UK trend that had seen fuel sales grow. As a result, UK fuel retailers are facing unfamiliar market conditions, and so will have to get used to operating in a market with falling sales, as is prevalent across the continent.