Why is Diesel Fuel More Expensive Than Gasoline?

In the past two years people have had to pay $4 for gasoline, $3 for gasoline and about $2.50 for gasoline, depending on the interest investors have in speculating on the price of gas. In spite of what most television and newspaper reports state, the wild fluctuations in fuel prices has little to do with the supply at gasoline refineries or the amount of crude oil available.

The price of diesel fuel moves up and down with the gasoline market, with diesel fuel at a slightly higher price. For example, if regular gasoline costs $2.50 per gallon, the cost of diesel fuel at the same location might be 40 cents to 60 cents higher. But this hasn’t always been the case. In years past, truck drivers and equipment operators paid less for their fuel than people paid for gasoline to put in passenger cars.

Some people even made the switch to diesel-engine cars because the miles-per-gallon rate is much better. But it’s now more difficult to justify having a diesel-powered vehicle because this particular fuel is more expensive than all grades of gasoline. Why this is so is somewhat a mystery. The official answer from an agency of the federal government is that the high diesel-fuel cost was tied to the increase in heating oil prices.

But now, the agency gives another reason: demand for diesel fuel and other fuel oils has increased so much that it is difficult to keep up with demand. Add to this the higher federal tax on diesel fuel and you have a higher price on a consistent basis.

What causes confusion among the general population and anger among the regular users of diesel fuel is this: this type of fuel and many of the “distillate” heating oils are less refined than gasoline. It would seem that diesel fuel would be less expensive to produce and thus less expensive at the pump or to purchase in bulk. But the cost of production is not the most important factor in figuring diesel-fuel cost. In this case, the price may actually be a reflection of supply and demand. Many critical observers of the petroleum-fuel industry say that this emphasis on demand separates diesel fuel from passenger-car gasoline in that gasoline prices are primarily a reflection of speculation and investment interest.

Crude oil from which gasoline and diesel fuel are made can be used to make a number of different types of fuel products – gasoline, diesel fuel, kerosene, heating oil for homes etc. With lower gasoline prices and increased demand, the refineries focus on producing plenty of gasoline from the crude oil they have. This means that diesel fuel takes a back seat in the production priorities. Less diesel fuel means higher cost.

Sometimes the price of diesel fuel goes down just before the winter heating season. This may be the result of higher levels of production of distillate fuels such as heating oil and diesel fuel. In addition, new sulfur-content standards for fuels have slowed diesel-fuel production. This may also add to the price.