John Hayes, an energy minister, will ask financial regulators to look into the oil market after 80 MPs demanded to know why drivers are paying so much at the pump.
Speaking in the House of Commons, he promised to write to the Financial Services Authority highlighting concerns about the oil market.
In addition, he said the Bank of England will expand its inquiry into Libor – the interest rate rigged by bankers - to include the oil price.
His announcement comes just weeks after the Daily Telegraph revealed warnings that the oil market is wide open to “manipulation or distortion”.
In a report for G20 finance ministers, George Osborne was told traders have opportunities to influence oil prices for their own profit.
This week, a whistleblower in the financial industry claimed prices are fixed on a daily basis by profiteering traders. Since then, pressure has been growing on the Coalition to look into how the oil price is affecting petrol, which is currently close to its record high of more than 140p per litre. Last night, Mr Hayes said there is “absolutely” a case for more transparency in the oil market. “When the Wheatley review [by the Bank of England] looks into Libor, it will include this market,” Mr Hayes said. The minister said he would also examine the conclusions of the G20 report and “how to implement these in the UK to ensure oil price benchmarks are not open to manipulation.” The Office of Fair Trading is currently considering whether to launch a separate inquiry into anti-competitive practices in the petrol trade. Mr Hayes said previous evidence suggests there is no problem with the petrol trade but he will ask officials to re-consider their figures. “My department believes the changes in the price of crude oil are indeed passed on at the pump, although it is clear from the data there is a considerable time lag involved,” he said. He said concerns that drivers in rural areas are suffering more than those in towns and cities will be “at the heart” of his inquiries. During the debate in parliament, MPs noted that President Barack Obama has recently strengthened supervision of the US oil market and increased fines for market manipulation. Robert Halfon, the Conservative MP leading the campaign against high petrol prices, said tighter regulation of the market is needed at a time when people are paying so much. "Motorists across the country are facing fuel poverty,” he said. “We are a great car economy but I believe that high petrol prices are creating a poverty trap, adding to Britain's dole queues.” Martin Vickers, MP for Cleethorpes, also welcomed the full investigation, saying everyone “deserves to know the real answer” about whether they are paying a fair price for petrol. Quentin Willson, of FairFuelUK, urged the Government to “drive through the call for full inquiries by the FSA and the OFT to bottom this issue once and for all’.