After finding "cause of concern in certain parts" of the sector, the UK's competition watchdog will investigate petrol and diesel pricing.
According to the Competition and Markets Authority, (CMA), prices have risen sharply after fuel was processed by oil refineries.
It also discovered "significant price differences" between forecourts located in "many rural areas and urban areas.
It said that retailers had not passed on a 5p fuel tax cut to motorists.
Kwasi Kwarteng, Business Secretary, requested the initial market review by the CMA last month in response to concerns that forecourts and retailers were not implementing the cut for consumers.
CMA's initial review concluded that the "generally the fuel duty reduction appears to have been applied".
Despite record fuel prices, however, the competition body will immediately start an in-depth market study.
Although oil prices have risen due to Russia's aggression on Ukraine, Brent crude, the international benchmark, is still $104 per barrel. This is far below the $128 peak reached in March.
However, petrol and diesel prices are still at an all-time high. This is driving the highest cost of living in 40 years.
According to the CMA, the main reason for rises in crude oil prices was the increasing gap between what it costs before it is processed and the price it receives after it has been refined into petrol or diesel.
In the last year, the difference in crude oil and wholesale prices of petrol and diesel has tripled from 10p to almost 35p per litre. Crude oil is converted into petrol, diesel and other products by oil refiners.
"While it is impossible to escape the global pressures driving up fuel prices, there is still cause for concern about the growing gap between oil price and wholesale price of petrol or diesel," stated Sarah Cardell, general counsel at CMA.
"We need to find out if there are legitimate causes for this, and if so, what steps can be taken to remedy it."
She said that while the overall retail market appears to be competitive, there are still some areas that need further investigation. This includes determining if the price differences between rural and urban areas are justified.
Jack Cousens, AA, stated that although the motoring association welcomes the inquiry into road fuel pricing, it feels that the problem is not the gap between oil price and wholesale price that feeds through to the forecourts, but the time it takes for the wholesale price to reflect at the pump.
"The fuel trade is able to pass on rising costs to customers but has a hard time passing on savings. It is known as "rocket and feather" pricing.
