The Real Price of Fuel

22 December 2009By Richard Boggs

As 2009 grinds to a close, the economy continues to hold the attention of everyone with a stake in the yacht business. The cost of keeping a large yacht in operation has driven a few owners ashore, and a left a few more tied to the dock. For many though, the scent of an economic rebound and renewed energy in the charter market is fueling confidence throughout the industry.

Speaking of fuel, compared to this time last year the cost of keeping the bunkers full hasn’t changed as much as the economy in general. A gallon of diesel loaded in St. Maarten costs about the same as last December, and bunkering in Gibraltar will cost a few percent less than a year ago. But for reasons unknown to most mortals, this year a gallon of fuel oil costs about 25 percent more in Fort Lauderdale.

The price of diesel fuel has been more volatile than the constituents of a barrel of crude oil and unlike its chemical makeup, far more difficult to predict.

Diesel fuel prices go up and down with the cost of crude oil, rumors of peace or war and the vagaries of the weather and proximity to national holidays. Predicting what it might cost to top the tanks for the next crossing might best be left to the economists. Not that they are all that accurate or can even agree. As George Bernard Shaw observed, “If all the economists were laid end to end, they’d never reach a conclusion.”

The average cost to bunker in the U.S. in 2009 was about 42 cents per gallon less this year than it was in 2007, and about $1.40 less than 2008. Don’t get too excited, this pleasant interlude will undoubtedly be short lived and is most likely an artifact of the recent worldwide financial implosion. A graph of fuel prices over the past 18 months looks like a map of the Himalayas with midsummer of 2008 showing a profile steeper than the north face of K2.

The cost to produce a gallon or liter of diesel fuel is remarkably similar internationally, except for Italy where it is consistently higher, and the U.S. where it is consistently lower. What is not consistent is the amount of taxes added to fuel bill. According to the U.S. Energy Information Administration (EIA), the base price for diesel fuel (in US dollars and gallons) last week was $2.46 in France $2.41 in the UK, $2.78 in Italy, and $2.28 in the USA. That was before the taxman showed up on the dock.

After taxes and duties have been paid, prices begin to get interesting. Top off the bunkers in France and expect to pay $5.77 and that moderately priced UK oil has jumped up to $6.75. That is high enough to choke an Italian owner who pays a comparatively modest $6.15 per gallone di gasolio. Despite the American propensity for complaining about taxes, they get off easy in comparison and only have to pay $2.75.

Of course for every tax there is a usually a way to avoid paying it. Commercially operated yachts generally upload fuel free of duty and taxes so the actual price paid is somewhere between the base price and the fully taxed version.