Why is Diesel So Much More Than Gasoline?
Today in the office, a friend asked me, “Why is diesel so much more expensive than gasoline?” It’s not the first time I’ve been asked that, and it’s not the first time I’ve wondered it myself. Diesel fuel has historically been a relative bargain compared to gasoline, so much so that I used to wonder why more automakers didn’t offer diesel engines in the North American market, as Volkswagen and Mercedes did. A year or two ago I thought that anyone who bought a diesel car was a visionary.
So why is it that today, in 2008, those visionaries are feeling completely ripped off? Why is diesel so much more expensive than gasoline? To find an answer, I did what any good journalist does: I turned to the Google. What I found there was less that satisfactory, to put it mildly, but it was a start. I found a couple online entries that quoted this statement from the Energy Information Administration:
“Until several years ago, the average price of diesel fuel was usually lower than the average price of gasoline. In some winters when the demand for distillate heating oil was high, the price of diesel fuel rose above the gasoline price. Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the U.S., putting more pressure on the tight global refining capacity. In the U.S., the transition to low-sulfur diesel fuel has affected diesel fuel production and distribution costs. Also, the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline.”
At face value, the reasons stated in this quote seem reasonable. Growing global demand and tight production… sure, sure, I get it. But those market conditions are also affecting the price of gasoline, so how is it that the price of diesel fuel has leapfrogged that of gasoline?? If the same forces are affecting both, shouldn’t the two prices be growing at approximately the same rate, and in approximately the same relation to each other? And the argument about the switch to Ultra-Low Sulfur Diesel Fuel doesn’t quite sit right with me, either… After all, ULSD was introduced to the market in mid-2006; why didn’t the price skyrocket two years ago?
Is there an answer to the question? Is it supply and demand, or is there something more sinsiter going on? What do you think?
June 27th, 2008 at 9:17 am
My vote goes to something more sinister. Someone is sticking it to us to affect our economy.
If gas is expensive, that’s just going to affect the average consumer a bit, perhaps driving habits. People will buy less goods to compensate, but not a huge problem.
If diesel is expensive (which most trucks use), now all of a sudden you are dramatically affecting the price of doing business across the board, since trucks deliver such a variety of products, so now a wide variety of prices are going to go up, affecting more people and companies.
But this will all go away if we just start drilling in Alaska, right, W?
June 28th, 2008 at 10:12 am
Consider that you only get approx. 8.6 gallons of diesel per 44 gallon of oil. The demand in Europe China and India for diesel is exorbitant. If you also
realize that that Euro is valued at approx. 1.60 to the dollar, you would expect the refiners to sell our diesel overseas to offset the sagging value of the dollar. The bottom line is that there isn’t enough value to the refiners to manufacture more diesel.
July 1st, 2008 at 3:40 pm
You know I read all this so called supply & demand! That the speculators are the cause etc. But as I read before we still make the same amount of gas & diesel out of each gallon of crude. So that means the production and costs to make it stay the same. So if costs go up they should be the same perportion. But when gas goes up a dime diesel goes up 20-30 cents. The old saying if it smell,looks & tastes like ???? then it probably is!
July 8th, 2008 at 2:27 pm
Considering the average unit sale for diesel is probably 80 gallons and the average gasoline sale is $20. The price for diesel should still be much lower. The need for low sulfur diesel was driven by the EPA and the refineries had to make changes. They could have recouped the cost over years but instead they are making us pay for the modifications up front.
July 8th, 2008 at 5:42 pm
Diesel is still cheaper than gasoline in Canada and Europe, so the supply and demand answer doesn’t fit.
July 9th, 2008 at 3:52 pm
HOW ABOUT A QUESTION INSTEAD.
I HAVE ALWAYS HEARD [FOR THE LAST 50+ YEARS] THAT DEISEL IN MADE FROM THE WAISTE OF MAKING GASOLINE.
IS THAT TRUE OR NOT?
July 15th, 2008 at 1:45 pm
lowering sulfer rates in diesel did more than anything else to raise the price of diesel fuel
July 22nd, 2008 at 8:22 pm
The answer to your question involves the excess gasoline being dumped on the US market from Europe due to the European automobile market being over 50% diesel. This depresses the US price for gasoline below world market levels. In addition the weak dollar has lead to US diesel fuel exports to Europe and South America further tightening the US diesel fuel market.
July 23rd, 2008 at 8:27 am
My understanding is the refining process for diesel and gasoline are different. The refineries in the U.S. are set up to produce 10% diesel per barrel of crude. The cost to change the process to produce 25% (as is done in Europe) would take years and cost 100’s of millions of dollars. There is a moritorium on building refineries, AND the oil companies are making a killing because of low production of diesel. There’s no incentive to change the process. The government says no to and we’re making huge profits, so, why change what’s working.
October 1st, 2008 at 10:36 am
It takes less oil to make diesel fuel than to make the different grades of gasoline. With the same size engine diesel power gets better mpg than gasoline (That’s why the transportation industry uses diesel engines). It going to take government legislation to increase the diesel fuel output and the number of vehicles that use diesel. The chance of that happening is small because of lobbyists and extreme right wingers who do not want government regulation or “BIG Government”.