Every new year, it’s essential to forecast the annual fuel usage of your business in order to create a tentative budget and monitor for any significant changes. If you’re looking to create an estimate for 2019, these tips will help you navigate the challenging issues to make actionable predictions.
Start with Gallons Versus Dollar Spend
The oil and gas industry is one of the most volatile and unpredictable markets around, making it difficult to estimate future prices. Between the sensitivity of crude oil prices to supply and demand changes and domestic refining issues , it’s almost impossible to predict when prices will rise and fall. However, while it’s difficult to predict the prices that you will pay at the pump, it’s easier to forecast the number of gallons that you will use. If you have a fleet card, you can automatically generate a report that breaks down how many gallons your company purchased each month. Otherwise, you may need to compile your total fuel spending for the year, then divide by the average fuel price for your area. This will give you a rough estimate of how many gallons you used over the previous year. Once this is complete, take time to evaluate whether your spending will increase over the next year. Have you added any vehicles or added new routes? Take these changes into account when running your calculations.
Create Your Average Budget
Once you’ve estimated your monthly consumption by gallons, you can multiply it by the average price you expect to pay per gallon. To ensure that you’re giving your team enough wiggle room, you may even want to add a buffer of a few cents to this calculation. Though your actual spending may be higher or lower, this gives you the baseline you need to monitor your fleet’s monthly spending.
Evaluate Monthly Differences
One factor that often goes overlooked in business spending is the number of working days per month. Break out your calendar and tally the number of days every month that your drivers could possibly fuel. In 2019, February has 20 weekdays while May has 23, so you may want to adjust your May budget to account for these three extra days. For industries where drivers work 6 days per week or frequently pick up weekend shifts, you should take these extra days into account for each month. Additionally, industries with drastically different seasonal volumes need to be very specific when creating their budget, and you should look back on previous usage to guide your calculations.
Consider the Breakdown of Diesel Versus Unleaded
If you have different types of vehicles, be sure to run separate calculations for the costs of diesel and unleaded fuel. In 2018 the national average unleaded price was $0.456 lower than the average diesel price, so keep these differences in mind if your fleet uses multiple fuel types. If your fleet includes unleaded vehicles, it is essential to ensure that your drivers are not splurging on premium unleaded without cause, so this may be the perfect time to review your driver fuel card policy with your employees.
Create Your Price Forecast
If you want to get extremely granular in your forecast, historical data is your best friend. The U.S. Energy Information Administration (EIA) has been recording daily gas prices since 1990, and you can download a full spreadsheet of their data at eia.gov. By looking at the prices in your region over the last few years, you can get a better idea of what to expect every month. To get an idea of where prices are headed, you can also look at the EIA’s national average forecast for 2019, though nothing is guaranteed. You should also be aware of regional differences when looking at these predictions, and you can use the historical data to estimate the differences between the national average and your specific routes. In general, prices rise over the summer and during holidays, so take these changes into account while creating your budget.
Example of an Annual Fuel Forecast
To help you forecast your 2019 fuel budget, we’ve mocked up some numbers to guide your way. These estimates are for a company operating on the west coast with 10 unleaded vehicles and 9 diesel trucks. This business is also expanding and plans to add an additional diesel truck in May, which will raise their expenditures moving forward. When reviewing the prices from 2018, they found that the west coast usually experiences higher fuel prices than the national average, so they need to adjust their estimate accordingly. As a result, they’ve added $0.579 to the estimated unleaded prices throughout the year and $.466 to the diesel. With the December 2018 price slightly above the forecasted 2019 average, we factored in a slow monthly decline in prices.
Keeping It Simple?
If your company requires a less complicated version of a fuel forecast, you can create a simple spreadsheet to send to your team. Take the average price you paid in 2018 and add 46 Cents per gallon to account for the EIA's estimated price increases across 2019. Though this is less accurate than a comprehensive monthly forecast, it will work for companies that don't need a more precise estimate.
As you calculate your fuel usage for the new year, these tips will help you make informed predictions. Though the cost of fuel is erratic and volatile, you can still create a tentative budget that will help your company stay on track throughout 2019.
Topic: Fuel Cards