Comment: Economist Dan McLaughlin recently opined that Irish consumers should be paying about 10 cent less per litre for their vehicle fuel.

His analysis, as reported in The Irish Times, gives the impression that petrol retailers are slow to pass on reductions that are occurring in crude oil on the world market or petrol on the Rotterdam spot market.

Retailers buy their product from oil companies and are invoiced by these companies at a wholesale rate determined by the oil company. This rate changes every two weeks, following internal reviews by the pricing section of the oil company.

The retailer has no connection with Rotterdam, the New York Stock Exchange or Opec in Geneva, where oil supply policy and pricing are ultimately determined.

Dr McLaughlin, the chief economist at Bank of Ireland, was quoted as suggesting that the recent figure of $580 (€454) per tonne of petroleum on the Rotterdam market represented a "27.5 per cent reduction from the $800 high of early August".

In March 2006, the Rotterdam price was $580 per tonne, the wholesale price changed by the oil companies to their retail customer was 94.97 cent per litre (excluding VAT).

The true variation is seen by comparing the figures for March 2006 and September 2006 in the table below, where the differential at Rotterdam has been passed through the wholesale chain. Retail prices are now lower by three cent per litre (including VAT) on average than they were last March.

The price of petrol is determined by each station based upon four criteria:

•What is the wholesale price on that day? The wholesale price changes, with immediate effect, every seven days on average;

•The operating expenses of that particular site;

•The competitive environment within the locality;

•The amount of stock the retailer is holding in their tanks and the value of that stock.

The "time lag" between the price of a barrel of oil (as quoted on the markets) and that product, having been landed, refined, blended, arriving at oil depots in Ireland, is generally between two and three weeks.

The Automobile Association is quoted as having surveyed the average price of petrol for August at 122.7c per litre. This product is delivered to the service station, and invoiced the same day, with payment made by direct debit from the operators account after three days.

The average price per litre (VAT included) the operator paid for the product would certainly be no less than 119.4 cent per litre. Out of this 3.3 cent difference, credit card charges for the purchases must be accounted for along with pump maintenance, insurance, lighting, maintenance, oil company fleet card charges, and staff costs. Oil company fuel charge cards reduce further the profitability for the retailers, with many cards delivering a paltry 1.28c. per litre, (1.3 per cent profit).

There is a plethora of abandoned and disused sites throughout the cities and country. If the trade were so lucrative, why is this happening? Why would Statoil, operators of 69 company-owned sites and suppliers under licence to a further 220 sites, recently sell its interest? Why did Esso dispose of more than 16 company-owned sites outside Dublin in the past year? The simple answer is that the retail price of petrol is insufficient to maintain margins for the profitability of the site.

Even the aforementioned Statoil and Esso, which were both wholesalers and retailers (double-margin), were unable to sustain profitability on their sites.

As a result, many are closing and motorists are having to travel further in search of fuel.

This situation has been mirrored in Britain, with the closure in the past 10 years of over 8,000 retailing sites. In Scotland, many motorists need to travel more than 40 miles from their town or village to fill up with what many people regard as a modern necessity.

At the risk of labouring the point, the myth that retailers are profiting from rises or falls in petrol costs need to be dismissed. The average petrol retailer provides an incredible service to their community, is part of that community and does not deserve to be pilloried or labelled by haphazard and biased analysis from a sector that itself has been the target for allegations of greed and "rip-off" practices.

The Bank of Ireland may pride itself on being able to manage on wafer thin margins; unfortunately, their petrol retail customers cannot.

Vincent Jennings is chief executive of the Convenience Stores and Newsagents' Association