CFS Report - Fuel Price Update
May 2016

Reimbursement for Business Use of Personal Vehicles

Study prepared for
The Treasury Board of Canada Secretariat

By Corporate Fleet Services

1  Fuel Price Update Synopsis

Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the Annual evaluation of per-kilometre reimbursement rates for government employees that are required to use their personal vehicles while performing government business. Furthermore, the periodic impact of varying fuel prices was to be evaluated quarterly by producing three additional Fuel Price Updates per year. The present document represents the Update for May 2016.

The latest Annual study established reimbursement rates for each Canadian Province and Territory after performing a comprehensive analysis of all vehicle operating expenses. These rates were presented in the Reimbursement for Business Use of Personal Vehicles Report, dated November 2015 (for publication on January 1^st, 2016). A subsequent Fuel Update was produced for February 2016.

The present Update reflects the impact of current fuel prices on the Travel and Commuting Rates' recommendations made in the Annual Report with a focus on average pump prices of gasoline by Province and Territory. The prices were averaged for each Province or Territory for the three months prior to the release of the current Update (the months of March, April and May 2016). All prices are given in dollars per litre.

This Update also presents the latest recommended rates of reimbursement for consideration by the Treasury Board Secretariat in dollars per kilometre. Federal and provincial sales taxes were also researched to determine if there were any recent changes that could have had an immediate impact on the total costs of vehicle ownership and operation.

For the period March - May 2016 fuel expenses represent 18.9% of the total cost of vehicle operation (reflected in the Travel and Commuting Rates) or a Canadian weighted average of 9.3 cents per kilometre. The present Update identified overall increases in average gasoline prices across Canada, which had a slight impact on the reimbursement rates. As a result, reimbursement rates for the ten Provinces either stayed constant or increased to a maximum of 1.0 cent relative to the previous Fuel Update (February 2016 for publication on April 1^st, 2016), with the greatest change being an increase of 1.0 cent for the Travel Rate in Alberta, New Brunswick and Newfoundland and Labrador and 1.0 cent for the Commuting Rate in Manitoba and Saskatchewan. For the Territories, the Yukon and Northwest Territories the rates stayed constant, while Nunavut saw a decrease of 0.5 cents for both rates.

2  Fuel Prices

2.1  Energy market context

During the past three months, crude oil and gasoline prices have been on an upward slope. Although inventories remain high, the oil output reduction in the USA, unexpected production disruptions in a number of OPEC countries and a wildfire in Alberta caused the oil prices to regain some of their value. Prices increased by over 35% since the beginning of March: WTI (West Texas Intermediate) increased from $34 USD per barrel to almost $50 USD and Brent increased from $37 USD to also almost $50 USD per barrel. Gasoline prices at the pump followed a similar trend, on average displaying an upward slope during the last three months, although the increase was significantly smaller than that of crude oil.

Global Crude Oil Demand

According to the World Economic Outlook report released by the International Monetary Fund in April 2016, the global growth rate projections have been reduced to 3.2% for 2016, which continues the trend of negative adjustments to economic growth projections (the January 2016 report estimated a growth of 3.4%, while the October 2015 report estimated 3.6%). The main factors affecting this trend have been comparatively low crude oil prices, which have had an impact on oil exporting economies, including Canada, as well as continued restructuring of the Chinese economy and worldwide political instabilities.

Growth rate projections for 2016 and 2017 have been adjusted downward for some of the most advanced economies, including the UK, Germany, France, Spain and Japan, which are now projected to only have moderate growth rates, ranging from 0.5% to 2.6%. The USA economy growth rate has been revised downward by 0.2%, and is now estimated at 2.4% for this year. Middle-East, Sub-Saharan and North African countries have also seen a decrease of 0.5% to 1% and their growth rates are estimated to be around 3% this year.

Similarly, IMF's World Economic Outlook report indicates that Canada's growth rate projection has also been reduced by 0.2% and is now estimated at 1.5% for 2016, and 1.9% in 2017. However, on the contrary, the Monetary Policy Review by the Bank of Canada released in April 2016 contains an increased projection of 1.7% for 2016 (compared to 1.4% in the January 2016 Review) on the account of increased government spending and better-than-expected economic results in the first quarter.

Economic contraction projections for Russia and Brazil have been more severely revised downwards, reaching -1.8% and -3.8% respectively. Significant economic contraction is also expected in Venezuela (-8%), Argentina (-1%) and Ecuador (-4.5%) in 2016. China's economic growth prognosis has increased slightly by 0.2% to reach 6.5% for 2016, which is still lower than the 6.9% from last year and 7.3% in 2014. India's economic growth projection remains high at 7.5%.

The reduced economic growth prognosis translates into a slower increase of global oil demand which, according to the OPEC Monthly Oil Market Report from May 2016, is expected to grow by 1.20 mb/d (million barrels per day) to an average of 94.18 mb/d, an increase of 1.29% over 2015. Previously the increase in demand was estimated at 1.35%. OPEC's reference basket (calculated as a weighted average of prices of crude oil produced by OPEC countries) has increased by 42.87% over the course of the last three months, averaging $37.86 USD per barrel in April, as compared to $26.50 USD per barrel in January.

Global Crude Oil Supply

The Global Crude Oil supply over the past three months has had some unplanned disruptions that, according the U.S. Energy Information Agency's report from May 2016, averaged almost 2.5 mb/d of reduced supply in April. There were a number of events that contributed to this reduction, including an oil workers' strike in Kuwait which alone resulted in a 0.2 mb/d drop in production, as well as outages in Iraq, Nigeria and Venezuela. The volatility of the crude oil market is still very high, underlined by the fact that in response to the news of strikes in Kuwait, the WTI price increased by as much as 7.9% in one day.

In addition, in early May, a wildfire in Fort McMurray, AB caused a complete evacuation as well as the shutdown of a number of Canadian oilfields. This had a further effect on boosting oil prices due to a reduced supply and higher uncertainty. Operations at many oilsand sites have since been restored; however the effects of the shutdowns are still being felt.

The U.S. Energy Information Agency reports that USA oil production capacity has been reducing steadily over the past three months, with an estimated production decrease of 0.08 mb/d in February, 0.09 mb/d in March and 0.1 mb/d in April. Annually, the USA output in April is estimated at 9.0 mb/d, down by 0.7 mb/d (or 7.2%) since April of last year.

Despite output cuts in the USA and production disruptions around the world, the OPEC report from May 2016 estimates that the global oil supply increased by 0.02 mb/d in April. This was largely due to the continued increase of oil production in Iran, who are working towards restoring their production levels at 4.0 mb/d. In April, Iran produced 3.45 mb/d, an increase of 6.1% since March. Iraq also increased their production by a further 3.4% in April, contributing to the overall increase of 0.188 mb/d or 0.59% of total OPEC oil production in April. Furthermore, the OPEC meeting that took place in April in Qatar did not reach any final decision on a production freeze, thus adding to the volatility of worldwide crude oil prices.

The global crude oil supply projections for this year have remained almost constant for the past three months. According to the U.S. Energy Information Agency's report from May 2016, the global supply is expected to grow by 0.46 mb/d (or 0.5%) in 2016 which is a minor adjustment from 0.45 mb/d projected in February.

As a result, oil prices have been on a rise since mid-February. WTI rose from about $34 USD per barrel at the beginning of March to almost $50 USD per barrel at the end of May, while Brent increased from about $37 USD to almost $50 USD per barrel in the same time period.

2.2  Gasoline prices across Canada

Gasoline prices in Canada have rebounded during the past three months as compared to their low point in mid-February. The most important factors that affected gasoline prices over the past few months were an overall increase in the price of crude as well as seasonal factors as we approach the summer driving season.

As expected, the price fluctuations of crude oil had a direct impact on gasoline prices at the pump. The rebound of global oil prices was the primary factor that drove up gasoline prices across all Canadian Provinces. The highest increase was seen in Alberta, Saskatchewan and Manitoba, mostly due to an appreciation of the Canadian crude as well as the higher dependence of Prairie Provinces on US refineries as compared to the rest of the country. The Territories, on the other hand, have exhibited a much less significant change, as they are slower to respond to global trends due to the lower demand.

Another important factor for the change in gasoline prices is seasonality. Every year, refineries have to undertake maintenance and seasonal transition from winter-blend to summer-blend fuel. At this time of the year this creates slight disruptions in the supply of gasoline and leads to an increase in prices for consumers, which during the past three months was more pronounced in the Prairie Provinces. Furthermore, summer-grade fuel undergoes a more elaborate refining process and is thus more costly to produce.

Currency markets also had an effect on gasoline prices. As most of the refined products consumed in Canada come from the United States, the relationship between the Canadian and the US currency has a direct impact on prices of gasoline throughout the country. For example, a slight appreciation of the Canadian dollar versus the US currency at the end of April has had a tempering effect on rising gasoline prices.

Taxes on gasoline also play a very important part in the overall price at the pump. In May 2016, on average, Canadians pay 37 cents tax for every litre of gas at the pump, and $654 in gas taxes each year. Montreal tops the charts with 50 cents per litre added on for tax, with Vancouver close behind at 47 cents.

The trend of future prices at the pump is extremely difficult to predict with any degree of confidence. The current energy market still displays signs of volatility that adds to the seasonal effects of switching to summer-grade gasoline as well as the impact of record inventories of fuel. These factors will probably display a mixed effect and make future prices at the pump hard to predict.

For example, while Alberta has been paying the lowest gas prices in the country for quite some time, this may soon change as a 4.5 cent per litre carbon tax is introduced in January 2017 and by 2018 it is expected to reach 6.73 cents per litre. Also, the fire affecting the Fort McMurray region is expected to have an impact on gasoline prices in Alberta as many oil companies were forced to close in mid-May in the wake of the fire, reducing oilsand production by more than a million barrels per day in the province.

In Canada, prices of gasoline at the pump include all applicable taxes. Prices vary significantly across the country, mainly due to the difference in the types and amounts of taxes being charged in different Provinces and Territories. The present Update calculated the average prices of regular gasoline charged at the pump during the past three months. The fuel price data was primarily obtained from Natural Resources Canada, based on weekly published fuel prices for 60 locations across Canada. This data was verified against an additional database made available by MJ Ervin and Associates that similarly tracks fuel prices all across Canada. Additionally, the data was spot-checked by using information available through Statistics Canada as well as other popular gasoline price reporting websites such as www.GasBuddy.com, www.GlobalPetrolPrices.com and www.TomorrowsGasPriceToday.com.

Consistent with the methodology of the Annual Report, when determining average gasoline prices per Province or Territory, we have used weighted averages according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total average price compared to smaller towns.

The following is a table with average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre, for the period March – May 2016:

Province/Territory	Current fuel price ($/litre)	April 1st 2016 Fuel Update fuel price ($/litre)	Price difference ($/litre)
Alberta	$0.875	$0.785	$0.090
British Columbia	$1.128	$1.108	$0.020
Manitoba	$0.896	$0.813	$0.083
New Brunswick	$0.944	$0.925	$0.019
Newfoundland and Labrador	$0.998	$0.962	$0.036
Nova Scotia	$0.972	$0.927	$0.045
Ontario	$0.988	$0.940	$0.048
Prince Edward Island	$0.964	$0.929	$0.035
Quebec	$1.034	$1.015	$0.019
Saskatchewan	$0.897	$0.811	$0.086
Northwest Territories	$1.074	$1.052	$0.022
Nunavut	$1.128	$1.182	($0.054)
Yukon	$1.022	$0.999	$0.023

Fuel price data was extracted for a period of three months (March 1^st, 2016 to May 24^th, 2016) in order to reflect current gasoline price trends. Subsequent reports will focus on three-month periods following the period covered in the present study. Average gasoline prices per litre and per Province or Territory were found to vary between $0.875 in Alberta to $1.128 in British Columbia and Nunavut, with a Canadian average of $1.008, an increase of 4.2 cents from the previous Fuel Update (February 2016 for publication on April 1^st, 2016). The lowest price was recorded in Edmonton, AB at 69.5 cents per litre and the highest in Vancouver, BC at 121.5 cents per litre.

Gas prices in Nunavut are typically set for a full calendar year and only rarely exhibit any changes. However, as compared to the previous Fuel Update (which also factored in Nunavut prices for December 2015), the average for the current Update was slightly lower than the previous one, which in turn had a slight decreasing effect for the reimbursement rates for Nunavut, the only decrease in Canada.

2.3  Sales taxes

For the current Update, research was performed to determine if there were any relevant changes to Federal and Provincial sales taxes that could have an immediate impact on the reimbursement rates. It was noted that the planned increase of the Harmonized Sales Tax in Newfoundland and Labrador that was initially cancelled, was in fact reintroduced and will be effective July 1^st, 2016. The province of New Brunswick is also implementing a tax increase effective July 1^st. For both provinces the new HST will be raised to 15%. In light of this, the calculation of reimbursement rates for the provinces of Newfoundland and Labrador and New Brunswick were calculated using the new 15% HST, since at the time of publication of the current report the tax hike will already be in place.

The province of Prince Edward Island, on the other hand, is planning a similar tax increase to 15%, however it will become effective on October 1^st, 2016, thus only affecting the next Fuel Update for publication on October 1^st, 2016. All of the changes to sales taxes described above were verified with the Canada Revenue Agency.

As of the date of this Update, no other changes were observed in sales taxes elsewhere in Canada. Moreover, no other changes are foreseen at this time in the immediate future.

3  Impact of Fuel Prices on Reimbursement Rates

3.1  Fuel consumption

In calculating the fuel costs contribution to the total vehicle operating costs, the methodology employed in the Annual Report was strictly adhered to. Fuel consumption for every vehicle model in the study was thus combined with average prices per Province or Territory to determine the fuel portion of operating costs, based on an average of 20,000 kilometres per year. 

3.2  Updated reimbursement rates

For comparison, the following table provides updated Travel and Commuting Rates, as well as rates previously calculated for the November 2015 Annual Report (for publication on January 1^st, 2016) and the February 2016 Fuel Update (for publication on April 1^st, 2016):

May 2016 Fuel Update Reimbursement Schedule (in dollars per kilometre)

	Travel Rate			Commuting Rate
Province/ Territory	Current Fuel Update	Apr 1 2016 Fuel Update	Jan 1 2016 Annual Report	Current Fuel Update	Apr 1 2016 Fuel Update	Jan 1 2016 Annual Report
Alberta	$0.430	$0.420	$0.440	$0.165	$0.160	$0.180
British Columbia	$0.470	$0.470	$0.475	$0.200	$0.195	$0.205
Manitoba	$0.455	$0.450	$0.470	$0.175	$0.165	$0.185
New Brunswick	$0.480	$0.470	$0.480	$0.180	$0.180	$0.185
Newfoundland and Labrador	$0.505	$0.495	$0.515	$0.185	$0.180	$0.190
Nova Scotia	$0.485	$0.480	$0.485	$0.185	$0.180	$0.185
Ontario	$0.535	$0.530	$0.540	$0.185	$0.180	$0.185
Prince Edward Island	$0.465	$0.465	$0.470	$0.180	$0.180	$0.185
Quebec	$0.490	$0.490	$0.500	$0.195	$0.195	$0.200
Saskatchewan	$0.445	$0.440	$0.460	$0.175	$0.165	$0.185
Northwest Territories	$0.565	$0.565	$0.585	$0.245	$0.245	$0.265
Nunavut	$0.575	$0.580	$0.590	$0.255	$0.260	$0.270
Yukon	$0.570	$0.570	$0.595	$0.240	$0.240	$0.265

Note: All figures were rounded up to the nearest half-cent.

The impact of gasoline prices on the reimbursement rates was relatively slight for the present Fuel Update. In comparison with the February 2016 Fuel Update (for publication on April 1^st, 2016), the Travel and Commuting reimbursement rates displayed a maximum of 1.0 cent per kilometre increase for the Provinces. For the Territories, both the Travel and Commuting Rates have seen decreases of 0.5 cents in Nunavut while remaining constant in the Yukon and the Northwest Territories. Canadian weighted averages have increased by 0.5 cents for both the Travel and the Commuting Rates and are now at 49.5 cents per kilometre and 19.0 cents per kilometre respectively.

It is worth noting that a sales tax increase in Newfoundland and Labrador and New Brunswick becomes effective on July 1^st, 2016 (which coincides with the projected publication date of the current Update). The HST in both provinces will be increased to 15%. The province of Prince Edward Island also has a scheduled a sales tax increase but it is only slotted to become effective on October 1^st, 2016 and will only affect the calculations of the next Fuel Update.

Fuel contributes on average 9.3 cents per kilometre to total operating costs, ranging from 8.2 cents in Alberta to 14.4 cents in the Nunavut. With the continued volatility of the energy markets, determined by global factors that are hard to forecast, it is difficult to make any prediction regarding gasoline prices for the next three-month period. However, any future changes will be reflected in the next Fuel Update.