The cost of gassing up

From the February 2024 print edition

The first months of the New Year is the time we usually plan for the rest of the year – and hope that the goals we set will not be too far off the mark when 2024 closes.

For businesses where fuel is a significant cost, looking ahead and budgeting is important and often frustrating. Fuel costs in particular are influenced by so many factors that accurate forecasts are heavily speculative. Still, collecting and analysing the best information available will give us some strong indicators of what the next 12 months have in store.

First of all, let’s look at the raw cost of oil. The CBC recently reported that global oil prices will probably be stuck at low levels for the next couple of years. This analysis from Deloitte predicts an average West Texas Intermediate (WTI) price – typically regarded as the benchmark for crude oil – of US$72 per barrel this year. That depression in price is because of cuts from major producers, record production in the US, and slowing growth in demand, according to its report.

That’s good news. The price of oil is at its lowest in two years, with prices hovering around 2021 levels.

As for gasoline, 2023 saw prices fall gradually over the year. The price surges of 2022 (at one point hitting a record 214.9 cents per litre in the Greater Toronto Area) are behind us as several geopolitical factors have settled, if not disappeared. Looking at this trend, CTV news speculated that, “we shouldn’t see significant increases in gasoline (prices) over the course of 2024.”

As for those who are more concerned about diesel prices, particularly those who do cross-border shipping, it appears weeks of diesel pump price declines have finally slowed, as the new year starts with a $3.876 per gallon national fuel average. Both diesel and gas prices began 2024 lower than a year ago. Even so, the nation’s diesel prices are 70 cents lower than this time last year, with the Lower Atlantic sub-region, Midwest, Gulf Coast, and Rocky Mountain regions all averaging prices less than US$4 per gallon.

Heating fuel’s influence
In Canada, as of January, the average price of diesel fuel is $1.31 a litre. Diesel fuel prices have also come down here at home from a high of over $2 in 2022. However, they don’t move in tandem with gasoline prices – often staying higher. Of course, winter is always harder as home heating fuel (same stuff as diesel) demand can influence price overall. Still, most industry watchers predict that lower prices will remain steady throughout this year for diesel.

In terms of price, there is another significant factor that must be calculated into the mix of pricing overall – the government. Currently the carbon tax that the federal government has levied on fuel continues to increase. This is a cost that is at least predictable. However, at this time, with fuel prices being high anyway, dumping further taxes onto the voluble price of fuel is simply painful.

Energynow.ca reports that these new costs are being layered on top of the current carbon tax that Prime Minister Justin Trudeau has hiked three times since the onset of the COVID-19 pandemic. By 2030, the current carbon tax will cost nearly 40 cents per litre of gas and ding a family more than $1,100 annually even after the rebates.

“The Trudeau government has also made it harder to increase the supply of Canadian oil and gas through its “no more pipelines” law, its discriminatory tanker ban on the West Coast, and when it rejected the Northern Gateway Pipeline and moved the regulatory goalposts on Energy East. To be clear, the government knows it could reduce the price of gas by up to about 30 cents per litre through tax relief. It’s not like Ottawa’s politicians have been working so hard that they haven’t noticed governments around the world cutting fuel taxes” said energynow.ca.

Cheaper fuel elsewhere
US President Joe Biden is pursuing fuel price relief south of our border and in Europe it is currently a goal of the European Parliament’s largest political party to bring down fuel prices.
In Ontario, Premier Doug Ford recently announced he was extending the 5.7 cent tax cut on gas till
at least this coming summer. The government launched that cut in July 2022 and has extended it several times since. Now the reduction – along with a 5.3-cent cut to the price of diesel fuel – will remain in place till June 30, 2024.

To sum up, fuel prices have been on a gradual slide throughout 2023. Supply seems to be steady and there is no anticipated surge in demand. In fact, a softening economy and possible slip in interest rates may slake the world’s thirst for fuel even further this year. However, price decreases will probably come to a halt this year. Still, you can anticipate a steady supply and no price increases in the coming 12 months.