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 is to be evaluated quarterly by producing three additional Fuel Price Updates per year. The present document represents the Update for February 2021.
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 2020 (for publication on January 1st, 2021).
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 December 2020, January and February 2021). 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 December 2020 - February 2021 fuel expenses represent 17.8% of the total cost of vehicle operation (reflected in the Travel Rates) or a Canadian weighted average of 9.4 cents per kilometre. The present Update identified overall increases in average gasoline prices across Canada, which only had a slight impact on Reimbursement Rates. As a result, the Reimbursement Rates for the ten Provinces increased by a maximum of 1.0 cent relative to the previous Annual Report (November 2020, for publication on January 1st, 2021). For the Territories, while rates for Nunavut and Northwest Territories remained constant, the Yukon rates saw increases of 0.5 cents for both rates.
2 Fuel Prices
2.1 Energy market context
Since late November, global crude prices have been on a steep upward slope, supported by a limited crude oil supply and a strong potential for rising demand resulting from the COVID-19 vaccine rollout. Thus, the West Texas Intermediate (WTI) rose from about $42 USD per barrel on November 20th, 2020, to $61 USD per barrel on February 17th, 2021, an increase of 45%. Similarly, the Brent climbed from about $45 USD per barrel on November 20th, 2020 to $65 USD per barrel on February 17th, 2021, also an increase of 45%. However, following the spike caused by a severe winter storm in the Mid-West and Texas, the prices have been trending down, losing $1.5-$2.0 USD per barrel as of February 19th, 2021.
Over the past three months, the average gasoline price in Canada has followed the crude oil trend, rising by about 15% from 103.7 cents per litre on November 20th, 2020 to 119.0 cents on February 12th, 2021.
This report aims to provide an overview of the current market situation and presents the latest estimates and forecasts pertinent to the energy market conditions. Nevertheless, similar to previous reports, caution must be exercised when considering the data available due to the rapidly changing nature of the COVID-19 pandemic and its subsequent impact on global markets.
2.1.1 The Coronavirus Pandemic
The second wave of COVID-19 caused by the coronavirus (SARS-CoV-2) spread rapidly from September 2020 through early January 2021, particularly through North America and Europe. This led to a number of major economies to re-enter a total or a partial national lockdown and in some cases, even curfews. Subsequently, the Situation Report published by the World Health Organization (WHO) indicates that, as a result of these measures, the overall situation has been improving. Cases have significantly decreased week-over-week since mid-January, when the total number of new cases peaked at about 5 million per week globally.
Canada had relatively low infection numbers during the summer months, but similar to a number of other advanced economies, it experienced the resurgence of the virus in the last quarter of 2020. To curb transmissions, Provinces had to resort to limiting travel (e.g. Nova Scotia, New Brunswick and Manitoba), implementing wide-spread stay-at-home orders (e.g. Ontario) and even curfews (e.g. Quebec). The reintroduction of extensive lockdown measures has restrained economic activity and imposed new hardships on households and businesses.
Notably, a number of new strains of the coronavirus have been discovered and continue spreading in numerous countries across the globe. Some of the new variants appear to be more contagious and, possibly, deadlier, posing additional uncertainty and concerns.
On the other hand, the vaccine rollouts have started in several parts of the world. It must be noted, however, that the vaccine production and distribution has faced substantial delays and logistical issues globally, postponing the immunization timelines.
2.1.2 Global Crude Oil Demand
While the second and third quarter of 2020 exhibited a significantly improved economic activity, the stricter containment measures and lockdowns reimposed in the last quarter of the year dampened the economic recovery. The economic outcomes of the second wave of infections will be more accurately reflected in the data and projections in the upcoming reports. As noted by the Bank of Canada, “until the virus is under control and there is no need for physical distancing, the recuperation phase of the economic recovery will likely remain choppy and uneven.”
The projections for 2021 have seen an overall improvement, but the actual growth rates vary widely between countries, mostly based on the current success of managing the pandemic as well as the rollout of vaccines. The International Monetary Fund (IMF) notes that the sizable fiscal support announced for 2021 for some economies, including the United States, European Union and Japan, not only will help lift economic activity among these economies but also have favorable spillovers for their trading partners.
According to the latest World Economic Outlook (WEO) Update from January 2021 published by the IMF, the economic results in the third quarter of 2020 were better than expected in a number of economies, including the United States, the Euro Area, Australia, India and Japan. This was mostly supported by improved private consumption in large part related to adjustments to telework (remote work), and therefore is likely to dissipate. The investments have picked up relatively slowly, indicating only a moderate recovery in the upcoming years. As a result, after shrinking by an estimated 3.5% in 2020, the global economy is expected to return to a growth path of 5.5% in 2021 and a further 4.2% in 2022.
The contraction of advanced economies is still estimated to have exceeded that of the rest of the world but has improved significantly as compared to the initial estimates when the contraction was projected at 8.0%. The latest IMF estimates indicate that the advanced economies shrunk by 4.9 % in 2020 and are projected to recuperate some of the losses this year, with a growth rate of 4.3%.
The latest estimates for the Euro Area indicate a contraction of 7.2% in 2020, with the largest reductions recorded in Spain (-11.1%), Italy (-9.2%) and France (-9.0%). This year, a return to positive growth rates is expected across Europe, currently projected to average at 4.2%.
An important milestone was reached in the relationship between the European Union (EU) and the United Kingdom (UK) as it exited the European bloc. In late December, only days before the previous trading arrangements expired, the UK and the EU reached an agreement formalizing the important free-trade relationship, eliminating downside risks related to a “no-deal-Brexit” – an unregulated departure from the bloc.
The U.S. economy has been considerably more resilient to the effects of the pandemic than initially projected, with the actual contraction estimated at 3.4% in 2020, far better than the 8.0% prognosis by the IMF back in June 2020. The economy is projected to grow by 5.1% this year, exceeding pre-pandemic levels.
For Canada, IMF estimates that the economy shrunk by 5.5% in 2020, much less than the 8.4% projection published by IMF in June 2020. However, the growth rate for 2021 has been revised down and is now projected at 3.6%. For comparison, the latest Monetary Policy Report from the Bank of Canada from January 2021 estimates a 5.5% contraction in 2020 and a 4.0% growth in 2021. Resurgence of COVID-19 cases and the subsequent lockdowns has led the Bank of Canada to estimate that the growth in the first quarter of 2021 is likely to be negative. Unemployment remains elevated at 6.7% and workers in service industries are once again the most affected by the lockdown measures. Therefore, considerable fiscal and monetary stimulus continues to be required to support households and businesses. On the other hand, the U.S. dollar (USD) has continued to depreciate against many currencies. With stronger commodity prices, oil in particular, the Canadian dollar has further appreciated by about 4% against the USD since October 2020.
The IMF and the Bank of Canada baseline scenarios assume fairly smooth and broad vaccine distribution. As a result, the risks to the projections above remain unusually high. The projections continue to be highly conditional on the vaccine rollout timelines and on the path of the virus and its new variants.
According to the report from February 2021, the OPEC estimates that the world oil demand declined by 9.7 mb/d in 2020, averaging 90.3 million barrels per day (mb/d), a drop of 9.7% as compared to 2019. With the widespread rollout of vaccines, the demand is projected to increase by 5.8 mb/d to average 96.1 mb/d in 2021.
The OPEC's reference basket price (calculated as a weighted average of prices of crude oil produced by OPEC countries) has seen a significant rise during the past several months, averaging $54.38 USD per barrel in January 2021, as compared to $40.08 USD per barrel in October 2020, an increase of 35.7%. However, the reference basket value is still 16.5% lower than a year ago.
2.1.3 Global Crude Oil Supply
The global crude oil production has been relatively stable over the past several months, remaining at 92.8 mb/d in November and December 2020, as reported by the International Energy Agency (IEA) in January 2021. This has been, in large part, attributed to the efforts by the OPEC+ coalition as well as a relatively slow recovery of U.S. shale oil production. Since October 2020, the number of U.S. rigs has been steadily increasing but remains well below the average count as compared to 2018-2019.
The OPEC+ coalition, including Russia, tapered the output reduction from the initial 9.7 million barrels per day (mb/d) in the spring of 2020 to 7.2 mb/d, or roughly 7% of global output, by the end of January 2021. This was, however, a more moderate rise in production than initially planned, mostly due to the high coronavirus infection rates continuing to threaten the global demand for fuel. Nevertheless, according to the current information available, the coalition is likely to continue to restore some of the output this year. On the other hand, Saudi Arabia announced an extra 1 mb/d cutback of its own in early January, providing solid support to global oil prices during the peak of the pandemic. This voluntary production cut is expected to be eliminated starting March 2021.
Adding to the expected rise in crude supply, the U.S. has announced a readiness to talk to Iran about returning to the 2015 agreement about Iran’s nuclear program. The lifting of U.S. sanctions would allow the return of almost 2 mb/d of output back to the market, applying downward pressure on oil prices.
In the past three months, the U.S. has been pumping close to 11 mb/d of crude oil. However, a severe winter storm caused a major disruption in mid-February. A Polar Vortex made its way from Canada to the southern U.S., affecting more than 150 million people and causing state-of-emergency declarations in 20 U.S. States. The most severe impact was in Texas where the storm brought significant snowfall and sustained sub-zero temperatures, causing widespread disruptions in oil production, refining operations, as well as electricity supply, as the infrastructure is not built to withstand frigid conditions. As the unprecedented cold affected wellheads and pipeline operations across the central and southern states, total U.S. oil production plunged by close to 40% or more than 4 mb/d, the largest drop ever recorded. This included the Permian basin – America’s largest oil field – where the output dropped between 65% and 80%, or 2.3 and 2.8 mb/d from its normal levels.
About a fifth of the U.S. refining capacity was taken off-line amid power outages and severe cold and is expected to take longer to recover from the sustained damage than the oil production. As a result of the storm, the demand for gasoline as well as other oil products rose, while the hazardous road conditions, power outages and terminal shutdowns created severe delivery congestion, leading to reduced supplies and increasing the prices at the pump.
Canada remains the world’s fourth-largest producer of crude oil, in 2020 producing an estimated 4.4 mb/d as reported by the Canada Energy Regulator, a significant decline from about 4.7 mb/d the year prior. Alberta produces more than 80% of all Canadian oil. About 98% of Canadian crude exports go to the U.S. and the current pipeline capacity exiting Western Canada is estimated at 3.9 mb/d. Over the past several years, the limited pipeline capacity has led to a glut of oil storage in Alberta, driving the price for Canadian oil down. This led to several pipeline extension and development projects to take place.
One such project was Keystone XL – a 2,735-kilometer pipeline from Alberta to Nebraska. The pipeline, once finished in 2023, would have carried 830,000 barrels per day of heavy oil. However, on January 20th, 2021 the new U.S. President, Joe Biden, canceled the much-debated Keystone XL’s permit. While this is expected to have a significant impact on how oil transportation is planned, industry experts have noted that the other pipeline expansion projects currently underway are likely to have enough capacity to handle the increasing volumes of crude exiting Canada. In addition, there is also substantial rail capacity to move a part of oil exports. However, the transport by rail is more expensive, especially over long distances, which is the main reason why rail is usually seen a “backup” option. Nevertheless, the Bank of Canada cautions that the transportation concerns could resurface as an impediment to oil exports over the medium term.
To temporarily aid with the oil glut in Alberta, the Province had introduced a production curtailment back in 2018. As a result of the pandemic, oil production in Canada had declined to levels that could be serviced with the current pipeline capacity in place. This led to Alberta lifting its oil production limits as of December 2020. Nevertheless, the government has extended its regulatory authority to curtail oil production through December 2021 if it becomes necessary.
Despite global output reductions, crude oil markets are still imbalanced. Therefore, the global inventories continue to be elevated, remaining 5.4% above the five-year average levels, as reported by the International Energy Agency (IEA) in January 2021. Some positive developments have been observed in the U.S., where the Energy Information Administration (EIA) reported that the crude oil stockpiles dropped to 461.8 million barrels in mid-February, the lowest level since March 2020. Production disruptions caused by winter storms are expected to increase draws from storage, helping to balance markets.
Overall, the International Energy Agency (IEA) estimates that the world oil supply fell by a record 6.6 mb/d in 2020. A higher demand is expected to allow supply to begin growing again this year. Thus, the global supply is now projected to increase moderately by 1.2 mb/d in 2021, with OPEC+ expected to contribute more than other producers.
2.2 Gasoline prices across Canada
Gasoline makes up the largest portion (or 44%) of refined petroleum product production in Canada. Overall, more than a quarter of refined products made in Canada are exported with 90% to the U.S. Notably, due to regional refinery configuration and trading patterns, about a quarter of all Canadian consumption of refined products is imported, a vast majority of which comes from the U.S. As a result, gasoline prices in the U.S. have a direct impact on gasoline prices in Canada as both markets are deeply interconnected. The latest data by the U.S. Energy Information Administration (EIA) indicates that the demand for gasoline in the U.S. remains subdued due to the pandemic – currently at about 10% below the levels recorded a year ago. This has led to lower average gasoline prices both in the U.S. and in Canada.
The three-month average price for gasoline in Canada between the Annual Report (November 2020 for publication on January 1st, 2021) and the current Fuel Update (February 2021, for publication on April 1st, 2021) has increased by 4.6%. In a year-to-year perspective, however, the three-month average price remains 4.6% lower than a year ago. An increase in gasoline prices has been observed all across Canada, with the smallest increases registered in the Western Provinces as well as the Territories (between 0.7% and 3.4%), the largest in the East (up to 10.9% in Newfoundland and Labrador), while Ontario and Quebec have seen an average rise of about 5.5%. Prices in Nunavut remained constant.
Prices of gasoline, in Canada, include all applicable taxes. Prices vary significantly across Canada, mainly due to the difference in the types and amounts of taxes being charged on fuel in different Provinces and Territories. The present Update calculated the average prices of regular gasoline charged at the pump. The fuel price data was primarily obtained from Natural Resources Canada via Kent Marketing, based on daily published fuel prices for 78 locations across Canada. This data was verified against additional databases that similarly track fuel prices all across Canada.
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 December 2020 - February 2021:
|
Province/Territory |
Current fuel price |
Jan 1 2021 |
Price |
|
Alberta |
$1.007 | $0.990 |
$0.017 |
|
British Columbia |
$1.270 | $1.228 |
$0.042 |
|
Manitoba |
$0.994 | $0.983 |
$0.011 |
|
New Brunswick |
$1.028 | $0.971 |
$0.057 |
|
Newfoundland and Labrador |
$1.212 | $1.093 |
$0.119 |
|
Nova Scotia |
$1.023 | $0.940 |
$0.083 |
|
Ontario |
$1.073 | $1.017 |
$0.056 |
|
Prince Edward Island |
$1.051 | $0.987 |
$0.064 |
|
Quebec |
$1.111 | $1.053 |
$0.058 |
|
Saskatchewan |
$1.025 | $1.018 |
$0.007 |
|
Northwest Territories |
$1.204 | $1.184 |
$0.020 |
|
Nunavut |
$1.104 | $1.104 |
$0.000 |
|
Yukon |
$1.221 | $1.199 |
$0.022 |
Fuel price data was extracted for a period of three months (November 16th, 2020 to February 12th, 2021) 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 $0.994 in Manitoba to $1.270 in British Columbia, with a Canadian average of $1.102, an increase of 4.8 cents from the previous Annual Report (November 2020, for publication on January 1st, 2021). The lowest price was recorded in Edmonton, Alberta at 86.4 cents per litre and the highest in Vancouver, British Columbia at 140.2 cents per litre.
Gas prices in Nunavut are typically set for a full calendar year and rarely exhibit any changes. There were no price changes in Nunavut for the current Fuel Update as compared to the previous Annual Report (November 2020, for publication on January 1st, 2021).
2.3 Sales taxes
For the current Update, research was performed to see if there were any relevant changes to Federal and Provincial sales taxes that could have an immediate impact on the Reimbursement Rates. As of the date of this Update, no changes were observed in sales taxes anywhere in Canada as compared to the previous Annual Report. Moreover, no changes are foreseen at this time for 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 Annual Report (November 2020, for publication on January 1st, 2021):
Current Fuel Update Reimbursement Schedule (in dollars per kilometre)
|
Travel Rate |
Commuting Rate |
|||
|
Province/Territory |
Current Fuel Update |
Jan 1 2021 Fuel Update |
Current Fuel Update |
Jan 1 2021 Fuel Update |
|
Alberta |
$0.485 |
$0.485 |
$0.180 |
$0.180 |
|
British Columbia |
$0.530 |
$0.525 |
$0.215 |
$0.210 |
|
Manitoba |
$0.495 |
$0.495 |
$0.185 |
$0.185 |
|
New Brunswick |
$0.520 |
$0.515 |
$0.190 |
$0.185 |
|
Newfoundland and Labrador |
$0.555 |
$0.545 |
$0.205 |
$0.195 |
|
Nova Scotia |
$0.525 |
$0.520 |
$0.190 |
$0.185 |
|
Ontario |
$0.555 |
$0.550 |
$0.195 |
$0.190 |
|
Prince Edward Island |
$0.510 |
$0.500 |
$0.195 |
$0.190 |
|
Quebec |
$0.530 |
$0.525 |
$0.205 |
$0.200 |
|
Saskatchewan |
$0.495 |
$0.495 |
$0.185 |
$0.185 |
|
Northwest Territories |
$0.615 |
$0.615 |
$0.260 |
$0.260 |
|
Nunavut |
$0.605 |
$0.605 |
$0.250 |
$0.250 |
|
Yukon |
$0.600 |
$0.595 |
$0.265 |
$0.260 |
Note: All figures were rounded up to the nearest half-cent.
The impact of gasoline prices on the Reimbursement Rates was minimal for the present Fuel Update. In comparison with the Annual Report (November 2020, for publication on January 1st, 2021), the Travel and Commuting Rates either stayed constant or increased by a maximum of 1.0 cent per kilometre for the Provinces. For the Territories, both rates either stayed constant or increased by a maximum of 0.5 cents per kilometre.
Overall, Canadian weighted averages have increased by 0.5 cents per kilometre for both the Travel and Commuting Rates. They are now at 53.0 cents per kilometre and 19.5 cents per kilometre, respectively.
Fuel contributes on average 9.4 cents per kilometre to total operating costs, ranging from 8.5 cents in Manitoba to 14.6 cents in the Yukon. Given the complexity of socio-economic factors affecting the global energy market, 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.