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 2021 (for publication on July 1st, 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). A subsequent Fuel Update was produced for February 2021 (for publication on April 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 March, April and May 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 March - May 2021 fuel expenses represent 20.2% of the total cost of vehicle operation (reflected in the Travel Rates) or a Canadian weighted average of 11.0 cents per kilometre. The present Update identified an overall increase in average gasoline prices across Canada, which had a moderate impact on Reimbursement Rates. As a result, both Reimbursement Rates for the ten Provinces increased relative to the previous Fuel Update (February 2021 for publication on April 1st, 2021) by between 1.5 cents and 2.0 cents. For the Northwest Territories and the Yukon, both rates increased by 1.5 cents, whereas Nunavut rates remained constant.
2 Fuel Prices
2.1 Energy Market Context
The increase of crude oil prices that begun in late November 2020 continued until early March 2021. Prices peaked at the pre-pandemic levels of $66 USD per barrel in the case of West Texas Intermediate (WTI) on March 5th, 2021 and moved up to almost $70 USD per barrel for Brent on March 11th, 2021. In the following weeks, the oil price adjusted downward reaching the three-month lowest price of just below $58 USD per barrel for the WTI, a drop of 12% from the three-month period high just a few weeks earlier. Brent also recorded a three-month lowest price at the same time, just shy of $61 USD per barrel, a downward adjustment of about 13%. The exact catalysts for the price drop were hard to pinpoint, but it appears that there were multiple shorter-term factors that had been the culprits. However, since fundamentals remained strong, particularly on the rising demand due to vaccine rollouts, the oil prices have been on a tentative rise since then. As of May 14th, 2021 the WTI stands at $65.37 USD, while Brent is at $68.71 USD per barrel.
While the price of gasoline generally follows the price trend of crude oil, its recovery was stronger, resulting in a considerable rise of prices at the pump over the past three months. The upswing in gasoline prices has been supported by several factors:
- a robust price of crude oil buoyed by a restrained supply,
- strengthening demand due to vastly improved economic activity enabled by mass vaccinations, fiscal stimuli, as well as behavior adaptations by consumers and businesses,
- closures of refineries,
- the cost of higher-grade summer gasoline due to a more elaborate refining process.
As a result, the average gasoline price in Canada rose by 12.9%, from 119.8 cents on February 16th, 2021 to 135.3 cents on May 7th, 2021. As of May 14th, 2021 the Canadian average gasoline price was at $134.2 cents per litre.
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
Despite a widespread rollout and increasing rates of vaccination, another wave of COVID-19 caused by the coronavirus variant (SARS-CoV-2) began in March. Globally it was the largest wave on record, peaking at over 900,000 daily cases in late April. The hardest hit countries include Canada, Japan, Brazil as well as the world’s second most populous country, India, where official confirmed cases, at one point, reached nearly a half a million per day with thousands of deaths daily.
The progress of vaccinations appears to be the main determinant of limiting the surge of new infections. Israel, the United Kingdom and the United States have had the highest vaccinations rates, with at least one dose administered to 50-60% of their respective population at the time of preparing of this report. These countries have seen a minimal to no impact of the third COVID -19 wave. Comparatively, the hardest hit countries, typically have considerably lower vaccination rates (e.g. in Japan only 4% of the population has received at least one shot and in India only 11%). Canada was facing vaccine rollout delays, which most likely contributed to the vulnerability to the new wave of infections. The vaccination rates have since increased with approximately 50% of the population having received at least one dose of vaccine. The global vaccine rollout continues to ramp up, with more vaccines being administered daily. As of May 21st, 1.5 billion vaccine doses have been administered worldwide.
In Canada, the third wave of infections has been comparable to the second wave. Daily infection rates were rapidly rising between early March and mid-April. To control the infections, reintroduction of lockdowns and strengthening of restrictions have been taking place across most Provinces. For example, Ontario reintroduced a stay-at-home order in April, while Quebec strengthened restrictions in several regions and maintained a nighttime curfew that was imposed in early January. The border between Canada’s two most populous Provinces has been closed for non-essential travel since April 19th, 2021. While the case numbers in most Provinces appear to be improving, Manitoba is still facing a surge in infections.
2.1.2 Global Crude Oil Demand
Despite the resurgence of the coronavirus and reintroduction of containment measures in several regions, the global economy appears to be considerably more resilient than previously assessed. The economic results proved to be higher-than-expected in the second half of 2020 after lockdowns were eased and as economies adapted to new ways of working. While the overall projections have seen upward revisions with economic activity set to increase in mid-2021, the economic recovery remains uneven and varies widely across regions and countries. Furthermore, the spread of new COVID-19 variants and the renewal of lockdowns, together with challenges to supply chains, are weighing on economic activity in many regions.
According to the latest World Economic Outlook (WEO) Update from April 2021 published by the International Monetary Fund (IMF), the global economy shrank by an estimated 3.3% in 2020. The global economy is expected to return to a strong growth path of 6.0% this year and to add a further 4.4% next year.
Advanced economies remain the most affected by the pandemic, shrinking by a combined 4.7 % last year. However, they are projected to recuperate some of the losses this year, with a growth rate of 5.1%. The latest estimates for the Euro Area indicate a contraction of 6.6% in 2020, with Spain, Italy and France still reporting the deepest losses, ranging from 8% to 11%, although all estimates have improved as compared to previous reports. Despite a negative growth rate in the first quarter of 2020 due to new COVID-19 variants that led to additional lockdowns, a return to growth is expected across the Euro Area this year and is currently projected at 4.4%.
The United States has been on a strong recovery path with solid progress on vaccinations against COVID‑19, helping to reduce the number of new infections by about 90%. As a result, this has led to an easing of containment measures, a boost in confidence and support for economic growth. Furthermore, the fiscal stimulus has continued with an additional $1.9 trillion USD American Rescue Plan (ARP) approved in March 2021. A robust demand for consumption, including high-contact services, is driving the economic growth. The improved economic activity in the U.S. has spilled over to their trading partners, including Canada. Overall, the U.S. is projected to grow by 6.4% this year, a significant upward revision and a sizable rebound after a 3.5% contraction in the last year.
While the Canadian economy is estimated to have shrunk by 5.4% last year, according to both the International Monetary Fund (IMF) as well as the Bank of Canada reports, the economic outlook for the recovery has been revised significantly upwards. The second wave of coronavirus infections in late 2020 proved that both consumers and businesses demonstrate a high ability to adapt and to function under restrictions. This resulted in a strong economic activity during the period of high infection rates and significant restrictions in the last quarter of 2020. Thus, the economic impact of the third wave is expected to be material but temporary and, as indicated by the Bank of Canada, the “rollout of vaccines, fiscal and monetary policy support, strong foreign demand, particularly from the U.S., and higher commodity prices should contribute to robust growth in 2021.” Nevertheless, the Bank of Canada’s recovery path estimates vary from the IMF projections, and are expecting a more rapid recovery in 2021 (now projected at 6.5%) with a more moderate growth of 3.75% for 2022. The IMF, on the other hand, projects a more even recovery, with a 5.0% increase in 2021, and further 4.7% in 2022.
Emerging markets and developing economies have been less adaptable to the challenges caused by the pandemic. Although their economic contraction last year has been smaller than that of others (estimated at 2.2%), they are expected to experience more significant medium-term losses, according to the IMF analysis. Furthermore, the effects of the pandemic have been uneven, with Latin American and Caribbean countries having a much larger contraction (7.0% in 2020) than Asian countries, which have seen a contraction of only about 1%. This is mostly due to China, that recorded a positive 2.3% growth rate last year. Furthermore, the recovery in Asian countries is expected to average 8.6% this year as compared to 4.6% in Latin America and Caribbean countries. India had suffered significant effects last year, with the economy estimated to have shrunk by 8.0%, but was on a path to rebound with a projected 12.5% growth rate this year. Nevertheless, with the devastating third wave of COVID-19 cases taking place this spring, the effects on their economies remain to be seen.
The recovering economic activity has been driving an increased demand for crude oil and its products. According to the Monthly Oil Market Report from May 2021, the OPEC estimates that the world oil demand contracted by 9.5 mb/d or 9.5% in 2020 as compared to 2019, averaging 90.5 million barrels per day (mb/d). Close to 60% of the demand contraction has come from the OECD (Organization for Economic Co-operation and Development) countries, particularly in the Americas and Europe. With the widespread rollout of vaccines, the demand is projected to increase by 6.0 mb/d, led by the U.S. and Canada, to average 96.5 mb/d in 2021. OPEC estimates are very close to International Energy Agency (IEA) projections, that stand at 96.4 mb/d for 2021.
While the overall global economic outlook is strong, uncertainties remain unusually high particularly related to the path of the pandemic, including potential increase in infection cases, the emergence of new variants and the acceleration or deceleration of vaccination rollouts. Other factors like progress in industrial activity, the persistence of changes in consumer preferences, the productivity benefits of faster deployment of new digital technologies, labor market recovery and effects of monetary and fiscal stimulus measures also remain uncertain.
The OPEC's reference basket price (calculated as a weighted average of prices of crude oil produced by OPEC countries) averaged $63.24 USD per barrel in April, 16.3% higher than in January 2021. Moreover, the reference basket value was 3.6 times higher than a year ago when the price was $17.66 USD per barrel in April 2020.
2.1.3 Global Crude Oil Supply
Since January 2021, the OPEC+ coalition maintained a tapered output reduction of about 7.2 mb/d, while Saudi Arabia had voluntarily curbed another 1.0 mb/d to help stabilize the energy markets. As the demand began to recover, production cuts remained unchanged and supported the hike in oil prices well into March, when the crude oil prices peaked. On April 1st, 2021, OPEC+ announced that it would slowly ease the productions cuts, planning in total to phase in 2.1 mb/d of oil supply by the end of July 2021. The group is set to meet again on June 1st to review their policy.
Responding to the recovering demand, the world oil supply rose in April, averaging 93.4 mb/d, and is expected to increase further in May as the OPEC+ alliance continues to ease output cuts, according to the International Energy Agency (IEA). In a yearly perspective, the global oil supply is projected to average 95.5 mb/d this year. IEA projects that Canada will lead the non-OPEC+ oil production growth, supplying 0.34 mb/d or nearly a quarter of the 1.4 mb/d production increase. Although the projected supply is about 1 mb/d below the projected demand this year, the levels of spare oil production capacity remain very high, particularly in the OPEC countries. This spare capacity can potentially be tapped into to help balance the markets if such a need arises.
A drop of 0.9 mb/d in the U.S. crude oil production last year was the largest annual decline in the U.S. Energy Information Administration's (EIA) records, falling from a record high of 12.2 mb/d in 2019 to 11.31 mb/d in 2020. The production decline resulted from reduced drilling activity related to low oil prices last year. Despite the rise in oil prices in recent months, the EIA expects that there is going to a be a further decline in production this year, averaging 11.02 mb/d, before making a recovery in 2022.
The oil price collapse last year led to very poor refining margins that forced many refineries to shut down. It was reported that globally about 2.0 mb/d of refining capacity was taken offline late last year, with the U.S. accounting for nearly 60% of it or 1.2 mb/d over a dozen refineries. Although gas prices have been recovering, the restarting of those refineries could possibly happen in 2022-2023, while many of the closures might prove to be permanent. This has been adding to the supply pressures of gasoline, pushing the prices upwards at the pump.
Furthermore, a disruption of the U.S. largest pipeline – the Colonial Pipeline – in May 2021 added pressure to the already rapidly climbing gasoline prices. The Colonial Pipeline is a 2.5 mb/d system of approximately 9,000 kilometres of pipeline that carries refined petroleum products, including gasoline from Texas to New Jersey, and serves several markets along the route through various branch lines. The pipeline is thus a significant mode of shipment for transportation fuels for the East Coast, particularly for several states in the southeastern U.S., providing about 45% of the region’s fuel supply. On Ma 7th, the pipeline operations were interrupted by a ransomware cyberattack. It took more than a week to restore the pipeline operations to full capacity. Panic buying spiked demand for gasoline by as much as 70%. It was reported that 7 in 10 service stations in North Carolina were out of fuel at one point.
2.2 Gasoline Prices Across Canada
As described in the previous Fuel Update from February 2021 (for publication on April 1st, 2021), gasoline prices in Canada are very closely related to gasoline prices in the U.S. due to the shared resources and infrastructure. As a result, the market conditions in the U.S. have a direct impact on gas prices in Canada, including Canada’s largest cities. For example, Toronto and the rest of the Southern Ontario follow the wholesale price movements of Buffalo, New York (NY) and Rochester, NY, while Montreal follows Albany, NY.
This year, the summer driving season is set to have a significant impact on gas prices across the U.S. and Canada. As part of a strong economic activity rebound, the demand for gasoline in the U.S. has been rising rapidly, in large part thanks to the easing of restrictions. Use of personal vehicles appears to be favored for both commuting and leisure travel purposes. According to the U.S. Energy Information Administration’s (EIA) data, the U.S. gasoline consumption is on track to average almost 9.0 mb/d this summer (April-September) which is 1.2 mb/d or 15.4% more than last summer, nevertheless still about 6.3% less than summer 2019. In a yearly perspective, the U.S. gasoline consumption is projected to average 8.7 mb/d, 8.8% above 2020 levels, but remaining at 6.5% below 2019 levels.
The rapidly rising demand and tight supplies have led to rising prices in both countries. In addition to the market factors, the increase of the carbon tax in Canada contributed to the gasoline price hike. On April 1st, 2021 the cost of carbon increased by an additional $10 per tonne, adding about 2.2 cents per litre of gasoline for the regular consumer, according to the Canada Revenue Agency calculations.
Subsequently, the three-month average price for gasoline in Canada between the previous Fuel Update (February 2021, for publication on April 1st, 2021) and the current Fuel Update has increased by 16.6%. In a year-to-year perspective, the three-month average price is 40.3% higher than a year ago. An increase in gasoline prices has been observed across Canada, albeit to a varying degree. The smallest increase has been observed in the Territories (10%-11% in the Yukon and Northwest Territories), while for the Provinces gasoline prices have increased between 15%-16% in Quebec, Ontario and British Columbia and 20%-22% in Manitoba, New Brunswick and Nova Scotia. Prices in Nunavut have seen only a minor adjustment of 0.4%, exclusively related to the increase of carbon pricing.
Nevertheless, due to the number of factors affecting gasoline price, the trend of future prices at the pump is extremely difficult to predict with any degree of confidence.
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, larger metropolitan centers account for a greater portion of the total average price compared to smaller municipalities.
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 2021:
|
Province/Territory |
Current fuel price |
April 1st, 2021 Fuel Update Report fuel price |
Price |
|
Alberta |
$1.191 | $1.007 |
$0.184 |
|
British Columbia |
$1.476 | $1.270 |
$0.206 |
|
Manitoba |
$1.198 | $0.994 |
$0.204 |
|
New Brunswick |
$1.241 | $1.028 |
$0.213 |
|
Newfoundland and Labrador |
$1.409 | $1.212 |
$0.197 |
|
Nova Scotia |
$1.247 | $1.023 |
$0.224 |
|
Ontario |
$1.252 | $1.073 |
$0.179 |
|
Prince Edward Island |
$1.251 | $1.051 |
$0.200 |
|
Quebec |
$1.280 | $1.111 |
$0.169 |
|
Saskatchewan |
$1.222 | $1.025 |
$0.197 |
|
Northwest Territories |
$1.328 | $1.204 |
$0.124 |
|
Nunavut |
$1.108 | $1.104 |
$0.004 |
|
Yukon |
$1.358 | $1.221 |
$0.137 |
Fuel price data was extracted for a period of three months (February 16th to May 14th, 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 $1.108 in Nunavut to $1.476 in British Columbia, with a Canadian average of $1.285, an increase of 18.3 cents from the previous Fuel Update (February 2021 for publication on April 1st, 2021).
Gas prices in Nunavut are typically set for a full calendar year and rarely exhibit any changes throughout the year. However, on April 1st, 2021 a new price update was issued to reflect the yearly increase in the Federal Carbon Tax, that brought the average price up by 0.4 cents for the current report. This, however, did not have any effect on the Reimbursement Rates and they remained constant. Due to its unique practice of setting gas prices for a full year, Nunavut average prices are expected to stay relatively constant for the next Fuel Update and Annual Report.
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 November 2020 Annual Report (for publication on January 1st, 2021) and the February 2021 Fuel Update (for publication on April 1st, 2021):
Current Fuel Update Reimbursement Schedule (in dollars per kilometre)
|
Travel Rate |
Commuting Rate |
|||||
|
Province/Territory |
Current Fuel Update |
April 1st 2021 Fuel Update |
Jan 1st 2021 Annual Report |
Current Fuel Update |
April 1st 2021 Fuel Update |
Jan 1st 2021 Annual Report |
|
Alberta |
$0.500 |
$0.485 |
$0.485 |
$0.195 |
$0.180 |
$0.180 |
|
British Columbia |
$0.550 |
$0.530 |
$0.525 |
$0.230 |
$0.215 |
$0.210 |
|
Manitoba |
$0.510 |
$0.495 |
$0.495 |
$0.205 |
$0.185 |
$0.185 |
|
New Brunswick |
$0.535 |
$0.520 |
$0.515 |
$0.210 |
$0.190 |
$0.185 |
|
Newfoundland and Labrador |
$0.575 |
$0.555 |
$0.545 |
$0.225 |
$0.205 |
$0.195 |
|
Nova Scotia |
$0.545 |
$0.525 |
$0.520 |
$0.210 |
$0.190 |
$0.185 |
|
Ontario |
$0.570 |
$0.555 |
$0.550 |
$0.210 |
$0.195 |
$0.190 |
|
Prince Edward Island |
$0.525 |
$0.510 |
$0.500 |
$0.210 |
$0.195 |
$0.190 |
|
Quebec |
$0.545 |
$0.530 |
$0.525 |
$0.220 |
$0.205 |
$0.200 |
|
Saskatchewan |
$0.510 |
$0.495 |
$0.495 |
$0.205 |
$0.185 |
$0.185 |
|
Northwest Territories |
$0.630 |
$0.615 |
$0.615 |
$0.275 |
$0.260 |
$0.260 |
|
Nunavut |
$0.605 |
$0.605 |
$0.605 |
$0.250 |
$0.250 |
$0.250 |
|
Yukon |
$0.615 |
$0.600 |
$0.595 |
$0.280 |
$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 moderate for the present Fuel Update. In comparison with the February 2021 Fuel Update (for publication on April 1st, 2021), the Travel and Commuting Reimbursement Rates both increased between 1.5 cents to 2.0 cents per kilometre for the Provinces. For the Territories, both Rates have increased by 1.5 cents per kilometre, except for Nunavut, where they remained constant. Canadian weighted averages have increased by 1.5 cents per kilometre for both the Travel and Commuting Rates, and are now at 54.5 cents per kilometre for the Travel Rate and 21.0 cents per kilometre for the Commuting Rate.
Fuel contributes on average 11.0 cents per kilometre to total operating costs, ranging from 10.2 cents in Alberta to 16.3 cents in the Yukon. The socio-economic factors affecting the global energy market are hard to forecast and 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 subsequent Fuel Update.