Diesel fuel, often used in commercial vehicles, was not always costlier than the unleaded fuel used in passenger vehicles. Gasoline is a more refined petroleum product than diesel; thus, the production cost of diesel reflects a reduced level of refinement. But why is diesel more expensive? Explore the factors that influence the cost of diesel.
Why is Diesel More Expensive Than Gas?
Taxes and refining are some influencers contributing to diesel’s cost.
Cost of Refining
Diesel fuel is denser and less reactive than gasoline during the refining process, making it easier to refine from crude oil. However, Ultra-Low Sulfur Diesel (ULSD) requires more refining. Introducing ULSD between 2006 and 2010 for all on-road diesel requirements to reduce harmful emissions raised diesel manufacturing prices.
Taxes
Taxes are a significant factor in determining the prices. The federal excise tax on diesel fuel is 24.4 cents per gallon, and gasoline is 18.4 cents per gallon. Since taxes are one of the critical components of ultimate consumer fuel pricing, tax policy significantly influences diesel prices in the United States.
Demand and Supply
Unlike gasoline, diesel fuel powers cars and public transit vehicles, huge delivery trucks, tractors, boats, machines, generators, and other equipment. During an economic boom, the industry’s energy demand rises considerably, and diesel costs climb faster than gasoline prices. The price disparity will expand as demand for diesel fuel rises vis-a-vis its supply.
Seasonal Effect
Home heating oil results from petroleum distillation, just like diesel fuel. As a result, heating oil demand influences diesel prices. Winter increases demand for heating oil, which tends to raise retail diesel prices. As a result, the price difference between gasoline and diesel varies seasonally.
Was Diesel Always More Expensive Than Gas?
No, diesel wasn’t always costlier than gas. As per the U.S. Energy Information Administration, until 2004, gasoline was more expensive per gallon than diesel. But after that year, diesel prices in the United States have always been more than the unleaded fuel. It’s worth noting that the federal government hasn’t raised the fuel or diesel tax after 1993. Over the last three decades, most states have modified their gasoline taxes several times.
Why is the Federal Excise Tax Higher on Diesel?
Most of the cash collected by fuel taxes goes toward maintaining roads and the infrastructure for transportation. Heavier trucks impact road infrastructure, and the bulk of vehicles transporting heavy loads use diesel fuel. Several states credit their higher diesel taxes on road damage.
Why is Diesel Cheaper for Some Big Transportation Companies?
Most truck stops, particularly major chains, have negotiated with transportation companies that give a significant discount for bulk purchases. Many trucking firms will guarantee a set number of diesel purchases at a reduced price. The trucking firm receives a substantial discount, while the truck stop gets a significant guaranteed revenue. This arrangement benefits the trucking firm and the truck stop.
Diesel is still substantially cheaper than gasoline in many European and Asian nations, as there are significantly more diesel-powered passenger vehicles. However, in the United States, the market supply and demand factor, along with a few additional contributors, keeps the prices of diesel fuel higher than regular unleaded fuel.
