When we watch gasoline prices climb steadily higher some of us are stunned when we see how high diesel fuel prices are going. Especially, when most of us are in the transportation section and most of our fleet fuel comes from diesel fuel. The U.S. average today for unleaded regular gas is $3.83 per gallon and for diesel fuel prices are $4.12. It makes a lot of people ask why are diesel fuel prices so high.
Back in 2008 when we saw the national average for regular gasoline hit a record of $4.12 per gallon, diesel fuel hit a record too, $4.85 per gallon… both of those records are likely to be broken this year. Bet more on the diesel fuel price beating beat than the gas price being beat and here is why!
Diesel fuels most of the country’s buses, trucks, trains and farm equipment. According to a new report produced by National Association of Convenience Stores, diesel fuel is powering an increasing number of passenger vehicles in the U.S. and abroad and there was a 27% increase in clean diesel vehicle sales in 2011.
NACS says the increased cost of diesel is a function of four factors.
First, the price of diesel fuel price is pushed higher by strong demand outside of the U.S. The U.S. is a gasoline-dominant motor fuels market. 98 percent of passenger vehicles are powered by gasoline with fewer than 2 percent powered by diesel fuel. Consequently, the refining infrastructure is designed for optimum efficiency in producing gasoline. From a typical 42-gallon barrel of oil, the refining process delivers around 18 to 21 gallons of gasoline and 10 to 12 gallons of distillate (diesel fuel) plus some other refined products. Refinery yields can be tweaked but to produce more diesel fuel but it is not that considerable when you put the added expense into play.
Outside of the U.S. other countries are much more reliant on diesel fuel. In Europe, for instance, diesel fuel is used in the majority of new passenger vehicles sold there. Strong international demand for diesel fuel–for both passenger vehicles and industrial machinery– has placed a premium on diesel fuel imports. This continues to grow dramatically each year as China continues to grow and drives most of this diesel fuel demand.
Second, here in the U.S. the Energy Dept. says overall gas consumption has declined by 5 percent since 2004 while diesel fuel demand has increased by 29 percent over the same period. In response, refineries have increased diesel fuel production 15.1 percent, boosting diesel yield from a barrel of oil from 23.9% to 27.5%.
Third, the introduction of Ultra-Low Sulfur Diesel (ULSD), which was gradually phased into the market between 2006 and 2010 to replace the on-highway diesel fuel known as Low Sulfur Diesel (LSD) mandated by the Environmental Protection Agency, required approximately $8 billion in refinery infrastructure upgrades. Naturally, that cost was passed on to you, the consumer. The Ultra-Low Sulfur Diesel Fuel added about 10 cents a gallon to the cost.
And last but not least, taxes. The federal tax on diesel fuel is 24.4 cents per gallon, versus 18.4 cents for gasoline. The last increase was in the early ’90s and that’s when diesel fuel was generally less expensive than gas prices. Also, most states tend to tax diesel fuel more than they do gas prices because it is easier for them to get those increased fuel taxes passed since then don’t directly affect their supports.
At the end of the day, what does this increase demand for diesel fuel mean and less need for gas? Well for those of us in the fleet fueling business and need diesel fuel to run our businesses it means higher prices. It’s pretty clear, you can get more gas out of a barrel of crude then you can diesel fuel. Let’s look at some fact you can get 22 gallons gas, 12 gallons diesel fuel and the rest other petroleum products. More of the world needs diesel fuel then gas. Only one way diesel fuel is going is higher, long term. Gas prices for your car look to be going down long term, since we use less and less of it, each year. Greg Laskoski contributed to part of this article.
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