Esso price rises for petrol and diesel stun Labour

Analysis

Cock-up or collusion? The conspiracy theorists were out in force yesterday morning after Esso stunned the Government by announcing increases in petrol and diesel prices just as the blockade of refineries and fuel depots was beginning to lift.

Cock-up or collusion? The conspiracy theorists were out in force yesterday morning after Esso stunned the Government by announcing increases in petrol and diesel prices just as the blockade of refineries and fuel depots was beginning to lift.

As the protesters turned around and scurried back to their picket lines, what clearer evidence could there be that the big oil companies wanted to prolong the petrol drought and put Tony Blair under even greater pressure to cave in and cut fuel duties?

By mid-afternoon the conspiracy theorists were packing away their theories after Esso, part of the world's biggest oil company, Exxon-Mobil, executed a U-turn and said it was reversing the price rises. If Mr Blair was surprised by Esso's initial announcement, it was nothing compared to the shock other oil companies had as they were setting off for another meeting at Downing Street.

An executive at a rival company said: "Our first reaction was that Esso was being stark raving mad or just incredibly stupid. There wasn't just a sharp intake of breath - my teeth nearly fell out. In PR, consumer and political terms, the announcement was naive and inept beyond belief, even if Esso did have economic grounds for raising its prices."

Other industry executives said it was no coincidence Esso's price rises were immediately followed by three other foreign-owned companies - Conoco, TotalFinaElf and Q8 - but not the two British-owned oil majors, BP Amoco and Shell.

In fact, Shell sneaked in a price rise last Thursday, hours before protesters began picketing its Stanlow refinery in Cheshire. BP and Texaco had raised their prices the previous Tuesday.

So what sparked Esso's move? "I would put my money on a cock-up, not a conspiracy," said a rival oil executive. According to this explanation of events, an Exxon financial planner in Dallas would have fed the latest rise in crude-oil prices into his spread sheet.

This would have told him that, to maintain its margins, UK unleaded prices would have to rise by 2p a litre and diesel by 4p. After that the instruction would have been automatically sent down the line to Esso headquarters in Leatherhead, Surrey.

Esso then compounded the PR gaffe by not announcing the increases until yesterday, even though the decision to raise prices was taken on Tuesday.

Could the world's biggest oil company be quite so inept? Unfortunately, the answer is probably yes. Esso's faux pas has uncomfortable parallels with the gaffe that Shell committed at the height of the Brent Spar saga in the summer of 1995.

In that case it was a Tory prime minister whose was left high and dry. John Major had just sat down in the Commons after delivering a defence of Shell's decision to dump the Brent Spar in the North Sea when the company cut the ground from under his feet by caving in to protests and deciding to tow the platform to shore.

Five years on, the idea that the oil companies are somehow in collusion with the ragtag army of hauliers and farmers blockading the refineries has steadily gained currency, fuelled by the Government's spin machine.

But can it really be so? Because petrol is relatively price inelastic - in other words people buy the same amount irrespective of how dear or how cheap it is - lower fuel duties are unlikely to feed through into higher sales and therefore bigger oil company profits. On the other hand, a refinery blockade turns petrol retailing from what is at best a marginally profitable business into a loss-making one. Colluding in that would have lost Esso money and turned the oil industry into the villain of the piece.