Selected findings and conclusions from the investigations of the Antimonopoly Office of the Slovak Republic in the sector of retail sale of fuels

07.12.2020
The sector of wholesale and retail sale of fuels is extremely important for the functioning of whole economy of Slovakia. Also for this reason, the Antimonopoly Office of the Slovak Republic (hereafter "the Office") pays an increased attention to the market of selling fuels and regularly monitors it. It was so also at the beginning of the COVID-19 pandemic. During this period, the Office received several complaints drawing attention to the fact that despite a significant decrease in current oil prices on world stock exchanges, the petrol stations of the largest fuel retailers in the SR did not respond sufficiently, which indicates the possible existence of a cartel agreement between them.
 
On the basis of above mentioned complaints, the Office initiated an investigation pursuant to the Article 22 Paragraph 1 Letter b) of the Act on Protection of Competition concerning the situation on the market of retail sale of fuels during the COVID-19 pandemic, focusing on disproportions in the rate of falling oil prices on stock exchanges and falling fuel prices at petrol stations. During doing so, the Office relied on current data available from public sources, data requested from the leader in domestic fuel market, the company SLOVNAFT, a.s., as well as from foreign and domestic sector inquiries in the field in the past.
 
In the first step, from public sources, the Office analysed the price development of oil on world markets at the given period. The price of Brent crude oil began to fall sharply from the beginning of March 2020 and the fall lasted until about the end of April 2020. During this period, its price fell from the initial level of just over USD 50 per barrel to USD 20 per barrel, which constitutes the decrease of 60 %. Later, the price started to rise again and at the beginning of June it reached the level of about USD 40 per barrel, which is still 20 % less than at the beginning of March.
 
At the same period, there is also a general decrease in the domestic consumer - retail prices of fuels. Within the SR, the Office analysed mainly the development of 95-octane petrol prices. Its prices began to fall at the same period as oil prices, i. e. from the beginning of March. The sources of the European Commission mapping average consumer prices in the EU states in the individual weeks of the year showed that the average price of 95-octane gasoline in the SR was EUR 1,294 per litre at the beginning of March 2020, falling until mid-May 2020, when it reached EUR 1,074 per litre, which constitutes the decrease of 17 %. Practically, the same decrease is also confirmed by the data of the company SLOVNAFT, a.s., which is the leader on Slovak market. The average prices of 95-octane gasoline at its petrol stations began to fall during the first week of March and were falling until the end of May. From the average level of EUR 1,312 per litre, it reached EUR 1,106 per litre at the end of May, which constitutes the decrease of 17,22 %.
 
The Office also monitored the development of 95-octane petrol prices in neighbouring countries and found out that at the same period from the beginning of March 2020 to mid-May 2020, the prices in the Czech Republic fell by 25,5 %, in Hungary by 20,5 %, in Poland by 22 % and in Austria by 16,2 %.
 
As part of the investigation, the Office also turned to the company SLOVNAFT, a.s., and asked it for information on the price development of its production on the wholesale as well as retail sale market, the volume of supplies to its own and other petrol stations, and also the factors affecting its wholesale and retail sale prices, especially during the COVID-19 pandemic.
  
The company's reply showed out that the refinery's fuel production at that period was continuous, but, mainly due to reduced fuel demand, in a reduced oil refining volume, which was reflected also in a decrease in wholesale and retail sale market. In March 2020, the volume of wholesale supplies of 95-octane gasoline fell by 52 % and the volume of retail sale supplies fell by 38 %. At the time of sharp fall in oil prices, the refinery processed oil from existing stocks, which it purchased under different market conditions, and thus at significantly higher prices. Due to the fall in demand, stocks were changed at a much slower pace and the refinery purchased smaller oil quantities than usual.

The level of fuel prices set by the company SLOVNAFT, a.s., as a price leader also has a significant impact on the prices of other undertakings on market. Out of the total number of approximately 900 petrol stations on Slovak market, the company SLOVNAFT, a.s., owns 254 stations, which constitutes up to 40 % of market. At the same time, the refinery supplies approximately 65 % ​​of motor fuels to domestic market. It also supplies a part of this volume to competitors, which operate petrol stations, e. g. SHELL, OMV Slovensko, JURKI, BENZINOL, OLIVA GROUP, UNIPETROL. The development, resp. the rate of fuel prices reduction of all major undertakings on market at the period under review thus in principle copied the prices development of the company SLOVNAFT, a.s.
 
In connection with fuel prices development on Slovak market during the period from March 2020, the Office took into account also the experience based on several studies in the past. In the work "Price asymmetries in petrol market in the EU and in the SR" from 2005, Viliam Pätoprstý examined using the ECM (error correction model) whether there are differences in prices adjustment on the wholesale and retail sale market according to whether it is an increase or a decrease in prices. The so-called rocket and feather theory says that if input prices rise, the sellers adjust prices upwards faster than they reduce them if input prices fall. According to this study, it was confirmed that Slovak retail market of 95-octane petrol suffers from systematic price asymmetry, i. e. that oil, exchange rate and commodity shocks are unequally reflected in the prices of final production - their rise is reflected half faster than their decrease. This theory has been confirmed also by the recent analysis of economists at the government's Financial Policy Institute.
    
Based on the above noted, the Office states the following facts concerning disproportions between the rate of decrease in oil prices on world markets and the decrease in retail sale fuel prices in Slovakia: 
  • The leader on Slovak market, the company SLOVNAFT, a.s., which significantly influences the level of fuel prices, at the period of the COVID-19 pandemic processed crude oil from existing stocks, which it purchased under other market conditions, i. e. even at significantly higher prices, with stocks changing at a much slower pace than usual due to the fall in demand.
  • Slovak fuel market has long been objectively characterized by a price asymmetry, i. e. in the event of an increase in input prices, sellers adjust prices upwards faster than they reduce them in the event of a decrease. It can therefore be said that such a development on market was probable.
  • The situation in neighbouring countries was not very different from Slovakia. The price reduction was more significant in the Czech Republic, Poland and Hungary, but it was not substantial, while in Austria fuel prices fell even less than in the SR.
It is clear from the above stated facts that, despite the decisive influence of quoted oil prices on international markets, numerous other factors are involved in fuel pricing and it is not possible to determine unequivocally how oil price developments will be reflected in consumer prices of fuel.
 
Another issue that consumers repeatedly turn to the Office is the same fuel prices at petrol stations at a certain location.
 
In this regard, the Office states that the similarity or the conformity of prices is not in itself the evidence of a cartel agreement and that it is not possible to initiate an administrative proceedings for the infringement of competition law exclusively on the basis of that fact alone. On the type of market, such as the retail sale of fuels, there is the high degree of transparency and customer awareness of price and characteristics of goods. At the same time, there are only relatively low costs for the customer to switch from one seller to another. On such markets, therefore, there is usually the so-called price tracking, when sellers monitor the prices of a competitor and then adapt their pricing policy.
 
It should be emphasized that price tracking, resp. its form in economic literature called as a conscious parallelism, is not prohibited from the point of view of competition law. Conscious parallelism constitutes a parallel behaviour, which typically occurs on markets with a small number of competing sellers, as well as when a strong company active on market is a market leader (in this case SLOVNAFT, a.s.). This behaviour is not the result of an explicit agreement between competitors. Firms on market are aware that it is in the interest of all of them to keep the price at a high level and to avoid intense price competition, and to act accordingly. Price tracking, resp. conscious parallelism therefore provides a logical explanation for the behaviour of competitors on some types of markets.
 
These findings and conclusions do not imply that the Office does not continue to monitor this market, nor that in the future it will not check whether there are other types of conduct of undertakings that could indicate the breach of the Act on Protection of Competition.
 
 
Last update:08.12.2020