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 transport fuels in the UK amounts to about 53 million tonnes per year, equivalent to about 49 billion litres or an average of 66 million litres of petrol and 70 million litre 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 having grown by 1% since 1999. Indeed this figure masks the fact that petrol sales have declined by around 35% and diesel sales increased by 45% during this period.

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 18 years the retail sector has undergone a major shakeout with the number of filling stations declining from 18,000 sites in 1990 to just 9,264 at the end of 2008.

This has been driven by a number of factors including the entry of supermarket groups into the market which, with the development of the out-of-town store and filling station, have captured around 40% of the petrol retail market by 2008, which has increased from 11% in 1992. Petrol retailing has become a high volume, low margin business and increased competition, particularly from supermarkets, has squeezed margins.

Coupled with the higher standards that customers expect on the forecourt and stricter environmental legislation, a lot of sites just could not justify the investment needed to keep up to modern standards. Inevitably many of these have been smaller independent sites but the major companies have also closed many of their own forecourts.

Source: Catalist (2005-2008); Energy Institute Retail Marketing Survey (1997-2005)

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 wthdrawal from the market is likely to be a feature.