The UK downstream oil sector comprises over 200 companies involved in the refining, distribution and marketing of petroleum products.
They range from oil companies, which are members of UKPIA, supermarket chains, independent retail groups, through to the independent retailer with one site.
The market is split into commercial and retail sectors. The commercial market includes power generators, industrial, transport (aviation, marine and road) and agriculture customers, independent fuel distributors (transport & heating fuels), the Government and its agencies, public services and the military. The retail market covers fuels mainly sold from filling stations.
The market for road fuels in the UK amounts to about 35 million tonnes per year, equivalent to about 44 billion litres. Demand for road transport fuels equates to 46 million litres of petrol and 74 million litres of diesel per day. Other than jet fuel, the market for transport fuels is mature with little overall growth in demand and in the case of retail fuels sold on the forecourt, this sector is virtually stagnant. Sales of petrol currently represent 38% of road transport demand by litres sold, whilst sales of diesel now represent 62% of total demand.
The members of UKPIA run the major oil refineries in the UK and they also market a wide range of petroleum products.
Over the last 26 years the retail sector has undergone major changes with the number of filling stations declining from over 19,000 sites in 1990 to just 8,494 at the end of 2015. These changes have been driven by a number of factors, including the entry of supermarket groups into the market. With the development of the out-of-town store and filling station, they have captured ~44% of the total retail fuels market by 2015, which has increased from 11% in 1992. Fuel retailing has become a high volume, low margin business and increased competition, particularly from supermarkets, has squeezed margins.
Source: Experian Catalist (2005-2015); Energy Institute Retail Marketing Survey (1998-2005)
This fierce competition has forced most fuel retailers to concentrate on large volume throughput sites with modern forecourt and shop facilities. Independent retailers usually have agreements with oil companies to sell fuel under the brand of the oil company.
By law these arrangements have a number of restrictions imposed by the Office of Fair Trading, including one that limits the "tie" to a particular company to a maximum of 5 years. Although the rate of decline in the number of filling stations is likely to slow in coming years, fierce competition in the retail market is unlikely to abate so continued consolidation or even withdrawal from the market is likely to be a feature.