Life On The Road

Why diesel fuel costs more than gasoline

Diesel fuel used to cost less than the more highly refined gasoline, but that’s no longer the case. Is there a real reason for this, or is it price gouging?
     Conspiracy theories aside, the main reason is rising global demand, but new environmental restrictions and higher federal taxes also are factors, according to the Energy Information Administration (EIA).
     Historically, the price of diesel fuel at the pump actually has been higher than that of regular gasoline more often than it has been lower. Until recently the normal pattern has been for gasoline to cost more than diesel during the summer months, when families use their autos for vacation travel, and for diesel to cost more during the winter months, when demand for home heating oil rises. (Diesel and home heating oil are similar fuels, and the price of home heating oil tends to set a floor for diesel, which could be substituted if it became cheaper.)
     Lately, however, that pattern has not held. Since September 2004 there have been few weeks when diesel wasn’t selling for more than gasoline – usually a lot more. As of the week of Jan. 26, 2009, diesel cost $2.27 a gallon on average compared to $1.84 for gasoline, or 23 percent more. That’s a stark difference from the week of June 19, 2000, when diesel sold for 15.3 percent less than regular gasoline. So what’s going on?
     The EIA cites “worldwide demand” not only in the United States, but also in Europe, China and India. According to the European Union’s most recent economic report, diesel autos accounted for 53.3 percent of all new registrations in 2007, a huge increase from the 13.8 percent share recorded in 1990. That’s several million new diesel-consuming vehicles every year.
     In India, the number of diesel-powered passenger vehicles is also rising rapidly. Diesel accounts for more than 30 percent of new vehicles sold in India and is expected to hit 50 percent by 2010. In China, diesel consumption has been soaring as the economy booms.
     EIA experts also say that the widening spread results in part from a slackening of demand for gasoline. As one analyst put it, “It’s not so much that diesel is expensive; it’s that gas is cheap.” He was speaking in relative terms, of course.
     Another factor given by the EIA is the transition to ultra low-sulfur diesel fuels in the United States. The added processing is an expensive proposition, and the cost ultimately must be reflected in the selling price of the fuel.
     Finally, higher federal taxes account for 6 cents per gallon of the price difference at the pump. Gasoline is taxed at 18.4 cents per gallon and diesel at 24.4 cents per gallon. That explains why diesel has sold for an average of 1.3 percent more than gasoline over the time period covered by the EIA’s figures.  
Source: FactCheck.org