Cheap Diesel Fuel Prices? A Distant Memory

For as long as anyone can remember, until recently that is, diesel fuel was always less expensive than gasoline which made things easy for fleet fuel managers. Why then have diesel fuel prices risen to the point of being higher than gasoline causing your fuel management upside down?

There are many factors that have contributed to this significant price rise. Certainly the evolution of efficient, small and medium duty diesel engines has increased demand for diesel. The acceptability of diesel powered automobiles and light and medium duty trucks worldwide, with the exception of the United States, has increased demand for diesel fuel. The tide has changed from a gasoline powered world economy to a world economy powered by diesel fuel. Diesel powered cars in the U.S. have not been accepted as it has in other parts of the world, in particular Europe, even though these engines are more efficient that their gasoline powered cousins. This rejection in this country can be attributed to the fact that Detroit has never pursued the development of diesel power and have concentrated more on the development of hybrids and electric powered cars. This may be due in part to the debacle of the Cadillac diesel in the 80’s that was a converted gasoline engine that was plagued with problems. Couple these factors with the higher price of diesel relative to gasoline and the public perceives that diesel power for everyday commuting is a no win proposition.

Let us now take a look at another factor that contributes to the supply issue. We all hear about crude oil being sold in barrels. What exactly is a barrel of crude and what can be produced from that barrel? A barrel of oil is 42 gallons of crude. As this 42 gallon barrel is refined into usable product, 19.5 gallons of gasoline is refined as opposed to only about 9 gallons of distillate which includes both diesel fuel and heating oil. The balance of volume includes jet fuel, kerosene, asphalt, lubricants among other products. Now we can really see how all these factors influence the rise in the cost of diesel fuel.

All things considered the diesel fuel price rise could have been worse. However, between 2002 and 2007 the U.S. refining industry tried to keep pace with the shift in product demand by increasing the net production of distillate fuels by domestic refiners by 15 percent and at the same time increased production of diesel fuel by more than 33 percent. This surely helped contain the price of diesel fuel somewhat.

So what does the future hold for diesel fuel prices? It is doubtful that we will ever see diesel prices fall behind those of gasoline considering all of the influencing factors stated above. World demand will only continue to increase and they can only squeeze so much diesel fuel from a barrel of crude. Government mandates for increased use of bio blends will also contribute to continued high and higher diesel fuel prices in the foreseeable future.