Petrol hits pounds 3 a gallon

Petrol has broken the pounds 3 a gallon barrier for the first time - even though retailers are in the midst of a vicious price war. And the gap between cheap and dear fuel has opened up as never before.

Metrication has disguised what would once have been a big event - there was much excitement when the pounds 2 barrier was broken in the late Seventies - but it is now possible to pay more than 66p a litre, almost exactly pounds 3 a gallon.

At Crudwell, north Wiltshire, a Q8 station is selling four-star for 66.9p a litre. But 100 miles to the south-west, at the Trago Mills shopping complex at Newton Abbot, Devon, motorists are paying only 51.9p. The difference between the two sites is 68p a gallon. Six weeks ago, when Trago was offering fuel at 42.4p a litre, the gap was close to pounds 1.

The Petrol Retailers Association says these unusually large spreads between the least and most expensive petrol are the result of the competition triggered when Esso launched its Price Watch campaign nationally in January.

Esso was trying to assault the hypermarkets, which had been using petrol as a loss leader, and said it would match their prices nationally. The other oil majors followed suit and have kept their prices low across the country.

However, smaller oil companies, such as the Kuwaiti-owned Q8, have matched low prices where competition is strong by supplying outlets with subsidised fuel, but have allowed prices to rise elsewhere. A Q8 spokesman said the company had no control over prices where it did not own the site.

The PRA claims that the surprise is not that petrol has now gone over pounds 3 a gallon, but that so much cheap petrol is still available. A spokesman said that a company buying four-star on the Rotterdam spot market, then adding tax and VAT, would have to charge 58.09p - not counting distribution costs and profit.

Large companies with their own refining capacity are unlikely to pay spot prices, and are also able to cross-subsidise the retail end with their upstream operations. Smaller companies are having to absorb the loss.

"It's bloody but it's a case of toughing it out to protect our long-term share," the Q8 spokesman said.

The PRA believes the price war is driving small retailers out of business, though it has no figures to confirm this yet. Its spokesman also says the shift to metric measures may have lessened public sensitivity to petrol price changes.

"Not many years ago people would rush out if they saw petrol 2p a gallon cheaper," he said. "Now if the man in the street sees petrol at 53.9 instead of 55.9p a litre, he still thinks it is 2p a gallon difference." It is actually a gap of more than 9p a gallon.