It's Easter weekend and, if all goes as usual, motorists will be hopping mad during the holiday. Their frustration will boil over when the needle reaches the red zone and they pull into the nearest filling station: first at the pump, then at the cash register.
That's where they'll note with dismay that the oil companies never tire of playing the same old game in the run-up to Easter. As in previous years, gas prices soared in the days leading up to the Friday before Easter -- just when millions of Germans head off on vacation.
In 2009, prices jumped by as much as 11 euro cents per liter ($0.54 per gallon) compared to weeks prior, as was documented in the Cologne area by a report released last year by Germany's Federal Cartel Office. At the time, the Bonn-based anti-trust agency said it was "plausible" that the oil industry was "purposely raising prices."
The study generated a great deal of attention, but failed to impact business practices in the sector because the Cartel Office was unable to prove that the companies had engaged in illegal price-fixing. Now, one year after the report's release, the profiteering practices of the oil companies have reached such a dimension that it would actually warrant a new official investigation.
Prices have never fluctuated as wildly as they have over the past few months. Last week, the price of premium gasoline reached €1.70 per liter ($8.41 per gallon) nationwide -- a new record for Germany . Sometimes, prices at the pump spike upwards by over 10 euro cents per liter in the space of just minutes, usually followed by a gradual decline.
Motorists will have to brace themselves for yet another round of price gouging over the Easter holiday. Indeed, the last taboo appears to have fallen in the fuel business. At oil company headquarters, staff have recently started working on Saturdays and Sundays. This allows them to raise retail prices even on holidays. It's endemic of the new pricing regime that the oil industry is trying to implement: The idea is to create systematic confusion.
The erratic prices at the pump frustrate consumers, who feel trapped and exploited. High gasoline prices tear large holes in their budgets and damage the entire economy. The prices are like an additional consumption tax: The more people spend on energy, the less available income they have for other products and services.
Today, German drivers of diesel-powered cars spend approximately 34 euro cents more per liter than they did two years ago. This means that a motorist who annually drives 15,000 kilometers (9,300 miles), consuming on average 10 liters of fuel per 100 km (23.5 miles per gallon), now spends €510 ($675) more every year.
It's probably inevitable that crude oil prices will continue to rise , causing fuel to become increasingly expensive. After all, this is a limited resource, and the scarcer it gets, the more valuable it becomes. This also makes it necessary for society to kick the oil habit and look for alternatives.
But this state of affairs by no means justifies a handful of oil companies raking in the profits. People have grown wary of these firms. The two largest, Aral and Shell, control nearly half of the German fuel market; add Esso, Jet and Total to the mix, and five companies dominate over two-thirds of the sector in Germany.
Concentration of Power
In the refinery business, they even jointly operate a number of facilities. Their parent companies, including BP, Royal Dutch Shell and ExxonMobil, rank at the top of the list of the world's largest companies.
Wherever there's such a concentration of power, the major players could easily be tempted to abuse it -- that is, at least, the general suspicion. Steffen Bock has made an interesting observation here. The entrepreneur says the price curves have suddenly taken on new shapes, and become more erratic and unpredictable.
Hardly anyone charts gasoline prices as painstakingly as Bock, who holds a degree in business administration and lives near the southern German city of Nuremberg. For the past 13 years, he has run clever-tanken.de, an Internet platform that allows German motorists to compare service station prices. The website attracts some 3.8 million visitors per month.
The site allows users to locate the least expensive filling station in their vicinity. Bock receives information from thousands of volunteer gas price watchers, from the research efforts of his 12 employees and directly from a number of gas stations. Currently, his greatest challenge is even getting wind of every price change, because there are simply so many.
The oil companies are constantly launching new initiatives, says Bock, and sometimes they change the prices at a station five times in a single day. Such changes used to happen once or, at most, twice a day, he says. Before, the rule of thumb was that Monday morning was the cheapest time to buy gas. Now, it's a whole new ball game.
Today, companies are pursuing an entirely different tactic: They cause confusion -- and they do it on purpose. "Non-transparency is their business," says Bock, and he explains the logic: Motorists are supposed to lose track of price trends. Then they can't really tell anymore whether fuel has just become more or less expensive.
New Threshold Price
Chances are good that they will catch an expensive phase. The oil companies are doing everything they can to keep the prices up as long as possible. Last week, for example, the companies made repeated attempts to get the price of diesel to remain above the €1.50 per liter mark, according to Bock. Evidently, it's hoped that customers will get used to the new threshold price.
The price fluctuations are erratic and apparently without any deeper meaning. But there's no doubt that the oil companies know exactly what they are doing.
The market leaders can only pursue this strategy, though, because they have sophisticated computer systems that allow them to precisely control, right down to the minute, when they increase their prices nationwide, and by how many cents. The prices are not set by the individual franchise holders. Instead, they are centrally controlled -- for example, in the town of Bochum, at the headquarters of Aral, a BP subsidiary that is the market leader in Germany.
The price manager merely presses a button and price signs immediately change at all 2,391 Aral service stations in Germany. All filling stations are electronically linked with Bochum via a dedicated network called Rosi. After each price increase, they watch closely to see how the competition reacts and whether they follow suit.
There's an Aral gas station right across the street from the headquarters on Wittener Strasse. The station franchise holder can observe how his toughest competitor, a nearby Jet service station, reacts to the price changes. He checks the Jet website on the Internet to find out how much the filling station is charging for the various types of fuel, or he briefly drives by. If the competitor's prices are significantly cheaper, the Aral franchise holder can, with the help of Rosi, apply for permission to reduce the prices again.
Then, on the other side of the street, at the Aral headquarters, one of the 16 staff members in the price department assesses whether the request is justified and plausible. Up to 6,000 such applications are submitted every day by franchise holders throughout Germany. Just one year ago, when the sector was calmer, there were roughly half as many requests to reduce prices.
Searching for Profit amid Declining Demand
In the oil companies' price system, the franchise holders also act as spies who constantly keep an eye on their neighbors. The average service station observes 3.38 competitors. Secret agreements, of the type regularly insinuated by critics, are not even necessary. The oil companies don't need to form a cartel, at least not in the legal sense, in order to act like a cartel: To simultaneously raise or lower their prices, all they need is their system, which allows them to track even the tiniest market movement.
The cycle is constantly repeated, with one of the players pressing ahead with a price hike. According to observations by the German anti-trust agency, 90 percent of the time this is done by one of the market leaders, Aral or Shell. Then the rest of the sector follows suit. In the hours that follow, individual players -- primarily supermarket-based and independent filling stations -- put up resistance and push their prices lower.
Subsequently, Aral and Shell franchise holders ask for permission to reduce their prices as well. After all, they are highly interested in selling inexpensive fuel to attract customers. German gas stations generally make more money selling goods like croissants, liquor and newspapers than from sales of petroleum products.
Last fall, Aral began testing a commission-based model that gives filling station operators an additional incentive to keep fuel prices as high as possible, in accordance with local market conditions. In addition to the normal commission of 1.1 to 1.5 cents per liter, franchise holders receive an additional payment if they exceed the so-called reference price, which is determined by the prices of filling stations in the vicinity of each Aral service station.
Justus Haucap, chairman of the Monopolies Commission, an independent body that advises the German government on competitive policy and regulation, says the high gasoline prices of the past few months can, at least to a certain extent, be attributed to this system: "The new commission model clearly comes at the expense of consumers," Haucap argues.
Aral rejects the allegations. The company says that the goal is not to achieve higher prices, but rather that "intense competition" determines the price level. Aral completed the test over the weekend, and says that it will now evaluate the results.
The suspicions of competition watchdogs like Haucap regarding the methods used by the oil industry have just been confirmed by two studies. One of these was conducted by Hamburg-based energy consultant Steffen Bukold on behalf of Green Party parliamentarians. The study comes to the conclusion that, between late November and early March, oil companies charged motorists much more than could be justified by the rising price of oil and the Iran crisis, allowing these firms to earn nearly €100 million more each month in Germany. According to Bukold, the industry has succeeded in "expanding its margins at the expense of filling station customers."
For instance, earnings from premium gasoline have risen from 11.52 to 16.25 cents per liter, and Bukold says that the companies' refineries have been the primary beneficiaries of this increase. If the margins had remained stable, he argues that premium gasoline would now be approximately 4.7 cents cheaper. The industry says that the calculations are wrong. Oil company representatives argue that you can't compare the price of gasoline with international crude oil prices, and that the key factor is the purchase price of fuel, for instance on the Rotterdam market. And this has risen significantly, they say, because the Americans are also purchasing fuel there due to a lack of sufficient refineries of their own.
The other study was conducted by Germany's ADAC automobile club. Based on a random sample of 33 filling stations, it documents how wildly prices fluctuate, even at night: One filling station in Munich jacked up its prices by 12 cents. The prices are often at their peak at the beginning of morning rush hour, says the automobile club.
ADAC members have long suspected that something fishy is going on at Germany's roughly 14,700 gas stations. What's behind this roller coaster ride, motorists ask themselves, and why are the prices jumping all over the place? And shouldn't politicians intervene? Can they even do anything?
Tough Talk from the Politicians
Whenever fuel prices rise, politicians like to talk tough. They can easily express their indignation, and they take great pleasure in lambasting the oil companies -- which never fails to prompt nods of approval on all sides. Even Green Party politicians become outraged about overcharging at the pump, says the environmental party's deputy parliamentary floor leader, Bärbel Höhn.
The debate is one of the most emotionally charged issues in Germany, the country where the automobile was invented 126 years ago, and where roughly 2 million jobs directly and indirectly depend on the automotive industry. There's hardly another country in the world where people get so upset over gas prices.
Until recently, banks were the most unpopular sector in the country, says Michael Schmidt, and sighs: "Currently, it's us again." Schmidt will begin on May 1 in Bochum as the new European head of operations at BP. He says his industry is being treated unfairly.
The oil executive sees the heated debate over gas prices as "very German," and the current studies on filling stations as "dubious." For instance, he rejects the ADAC allegation about prices always hitting their peak during the morning hours. "There is no hidden agenda here," says Schmidt, who notes that motorists can just as easily buy gas in the evening.
Schmidt argues just as the oil industry often does: He asserts that the fluctuations merely demonstrate the intense nature of competition in the sector. There's a great deal of transparency, he says, as proven alone by the meter-high price signs at service stations. The margins are comparatively small, and the sector is rapidly shrinking, he adds.
Indeed, sales of gasoline and diesel have been declining for years, and this trend is likely to accelerate. According to a prediction made by the Association of the German Petroleum Industry (MWV), demand in Germany is expected to decline by over 15 percent by the year 2025. This makes it increasingly difficult for the German petroleum industry to earn a similar level of profits as before.
And this is precisely why Aral, Shell and the other major players are deliberately sowing price confusion. They are using all of their market influence to close the profits gap.
Fortunately for the industry, some motorists are not solely concerned about prices. Otherwise Jet, the ConocoPhillips subsidiary, whose gas stations regularly undercut the closest market leader by one cent, wouldn't merely rank in third place among the largest chains in Germany. Otherwise the country's independent filling stations wouldn't lead such a marginal existence, although they often act as price busters. And otherwise 5 to 6 percent of Aral customers would not opt for high-octane Ultimate 102, although this fuel is currently six cents more expensive than premium gasoline.
And an entire target group of customers, namely the drivers of company cars, usually cares very little how high prices currently happen to be at the pump: They merely present the company card at the counter.
In a current Infratest survey commissioned by SPIEGEL, when asked where they normally buy gas, 22 percent of respondents said that they head for the filling station where they always buy fuel. In other words, over one-fifth of Germany's drivers are loyal customers and thus not particularly price sensitive. Furthermore, 15 percent said that they usually buy gas at the nearest filling station: Convenience often wins out over economic common sense.
Helpless Reaction from Berlin
In general, of course, price is a decisive factor when deciding on a service station: 61 percent of respondents indicated that they buy gas where it's cheapest. Yet making a lengthy detour for cheaper fuel is rarely worthwhile: There is no point in driving more than 7 kilometers for each leg of the extra trip, for instance, when filling up the tank of a VW Golf with a price margin of 5 cents -- otherwise, you actually end up spending more money.
Other customers appreciate it when a service station store has a wide selection of products, ranging from champagne to canned beer, and when the entire station makes a pleasant, clean impression. In recent years, Aral and Shell have invested a great deal to make their filling stations more attractive -- in part to justify higher prices.
But this is not nearly enough to allow the market leaders to deflect the general sense of outrage over high gas prices. The atmosphere is so charged that politicians feel obliged to act. Now, the goal is "to create more transparency for consumers," says German Consumer Protection Minister Ilse Aigner. But how?
The German government is reacting to rising gas prices with a mixture of impulsiveness and helplessness. German Economics Minister Philipp Rösler rashly pointed out that he has long been working on a proposal to tighten up Germany's competition law, which he says would also affect the oil companies. Concretely, this would ban refineries from supplying independent filling stations at a considerably higher price than the service stations of the big oil companies. But Rösler's amendment would hardly affect current practices. It's already theoretically illegal to discriminate against independent gas stations. But that doesn't mean that the industry always automatically observes the letter of the law.
Another toothless proposal by Rösler is the planned market transparency unit, which is to be established within the Cartel Office. The plan calls for energy suppliers to report their purchasing and selling prices to the anti-trust agency a number of times daily. This legislation would not include filling station operators, however, so motorists can expect no relief here either.
An Australian Model for Germany?
Last week, the parliamentary groups of the governing coalition parties, the conservative Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the pro-business Free Democratic Party (FDP) came up with a range of proposals bordering on the absurd. One idea would require filling station operators to report their prices to an agency, every day at 2 p.m. The prices would be valid for 24 hours starting at 6 a.m. the following day, and the figures for each filling station would be posted on the Internet.
Western Australia pioneered this model. It's been practiced there for a good 10 years -- in a region that is seven times as large as Germany, but has only 4 percent of the country's filling stations: Is this system actually applicable in Germany?
The politicians have apparently not yet delved deeply into the matter. In any case, the model hasn't even won over the Australians. Four years ago, the Australian parliament rejected a proposal to expand the system to the entire country.
The Austrian government has also regulated fuel prices. For more than a year now, filling stations have only been able to raise their prices at most once a day, at 12 noon, although price reductions can be made at any time. And in Italy market leader Eni decided a few years ago to change prices less often.
The results of these foreign models are sobering: Prices have risen everywhere, fluctuations continue and, if anything, big oil has further solidified its hold on the market. The supposed models have turned out to be rather questionable. Consumers admittedly gain the certainty of knowing that they can rely on a given price, but gasoline is still a long way from becoming any cheaper for them.
It was the Cartel Office that brought up models to introduce more transparency and competition to the market. Ironically, though, it was this very anti-trust agency that helped pave the way 10 years ago for the major players on the German market to gain their power in the first place.
Not Yet Expensive Enough
At the time, the competition watchdog gave the green light to two mergers: BP was allowed to acquire the filling stations from Aral and Shell was able to buy service stations from RWE Dea. Although both groups had to sell a number of gas stations, the Aral and Shell power bloc has cemented its position. In late 2010, Shell was even able to acquire 41 service stations from the Edeka supermarket chain.
Indeed, the state has missed its opportunity to reform the market. There is practically no chance that a new retailer will enter the sector and shake things up. Such a venture would fail anyway because any newcomer would have to buy fuel from refineries that are nearly all at least partially owned by Shell, BP or Esso. Pipelines and storage tanks are also operated by the major players.
Motorists ultimately have no choice but to stimulate the market with the rather limited options available to them. For instance, they can adapt their driving habits to the high gas prices: 37 percent of Germans intend to spend less time behind the wheel in the future. Or they will very consciously take their business to small or medium-sized service stations in an effort to stimulate the competition.
Or they will opt to purchase a particularly fuel-efficient model the next time they buy a car. Many motorists are now closely watching their fuel consumption -- but certainly not everyone: One in seven newly registered vehicles in Germany is a gas-guzzling SUV, the highest share ever.
For these consumers, gasoline is apparently not yet expensive enough.