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19.2.4.  EU oil market

    Although it is less developed than the nuclear market, a single market in petroleum products exists in many respects. On the basis of the EEC Treaty (now the TFEU) governing the oil market, all quantitative restrictions to trade between Member States and all measures having equivalent effect have been abolished. Tariff obstacles to trade in petroleum products were phased out in July 1968. On the external market, the Common Customs Tariff set a zero rate for oil and very low rates for refined products. The latter were further reduced in the framework of the General Agreement on Tariffs and Trade. All the freedoms written into the Treaty of Rome, such as freedom of establishment and the freedom to provide services, are applicable in the oil sector [see chapter 6].

    Even if the common oil market is not yet perfect, petroleum products can move freely from Member State to Member State. The big oil companies have been able to build refineries at certain nerve centres in the common market to supply refined products to networks covering neighbouring regions in two or more Member States. This means that refinery production and distribution activities can be rationalised to meet supply in surrounding regions without regard to national borders. Oil and gas pipelines consequently start their journey from the major ports of the Mediterranean and the North Sea, cut across one or several Member States and supply crude oil to the refineries of different oil companies situated in another Member State. Before the creation of the common market, it would have been unthinkable for a European state to entrust the supply of a product as vital as oil to the good will of one or several neighbouring countries. The European Community/Union has rendered self-evident certain situations, which would have been inconceivable in the protectionist post-war period [see section 1.1.2].

    It must be said, however, that in a single market organised in the same manner as a national market, price differences for oil products, other than those due to transport costs, should logically only have been marginal and temporary, as they should have been corrected by the transfer of products from low-price to high-price regions in a short period of time. This is not yet the case in the internal market of the European Union where the pre-tax price differences for petroleum products are still important. The specificities of the oil market account in part for these price differences, as, usually, oil products are transferred at prices which do not make allowance for market conditions in the country of destination. This may be due to the oligopolistic structure of the oil industry and in particular to the sales policy of the large companies which have a near 80% market share. While the oil multinationals trade petroleum products on a large scale, they do so at subsidiary-to-subsidiary transfer prices, which do not upset the conditions on each specific market.

    The levelling out of petroleum product prices in the internal common market has also come to grief on different price regulations existing in the Member States. These regulations set the maximum prices at which the main petroleum products can be sold and are powerful economic and energy policy instruments. The problem is that there is no one simple formula for setting petroleum product prices and energy policy priorities vary from Member State to Member State. As a consequence, there is considerable variation in maximum price systems. The system, which exists in a particular country, influences the market policy of large oil companies and particularly the production cut in the refineries. Since the production cut is relatively flexible, it is in the interests of oil companies to produce larger quantities of the products which they can sell at a high price on any market at a given moment, while keeping prices within the ceilings stipulated by regulations.

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    Your roadmap in the maze of the European Union.

    Based on the book of Nicholas Moussis:
    Access to European Union law, economics, policies
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