Posts Tagged Diesel

This is part one of a three-part series on diesel in the United States. Part two is about why diesel vehicles make up such a small part of the American consumer vehicle fleet. And part three is about what diesel options are coming soon to America.

Many years ago, diesel was cheaper than gasoline. However, since about 2004, that has not been the case. The additional requirement that refineries produce diesel very low in sulfur has also contributed to the increase in price. The U.S. Energy Information Administration has a nice great page focused on Diesel Fuel Prices.

The reason diesel is more expensive in the United States is a bit difficult to nail down. Diesel has historically been cheaper than gasoline in the U.S., but it’s currently cheaper than gasoline in many countries. Take the Netherlands, for example: a gallon of gasoline runs about $7.52 per gallon and diesel about $5.40 per gallon. These same Department of Energy charts show diesel costing about 30 cents more per gallon than gasoline here in the United States, at about $2.92 per gallon. (This is about the time when you realize that you’re getting a great deal on fuel costs!)

Supply and demand issues contribute greatest to the diesel price premium. FactCheck.org has a great overview that explains the diesel price situation. The page talks about historical price trends, but one of the most intriguing explanations of why diesel is more expensive is because gasoline is “cheap.” The Energy Information Administration pointed out that Americans decreased their amount of driving because of gasoline costs. About 97% of consumer automobiles in the U.S. are gasoline-powered, which resulted in great decrease in gasoline demand when gas prices started hitting consumer pocketbooks. However, diesel usage remained much steadier; we still needed all those trains and jets and ships to get goods from one place to another, and all those trains, jets, and ships use diesel (or a fuel very close to diesel in form). Ultimately, demand for gasoline decreased, so price decreased; demand for diesel didn’t decrease, so its price didn’t decrease. This allowed gasoline prices to fall below diesel prices, and that’s where we’re at today.

When looking at worldwide diesel demand, it’s growing rapidly. More than 30% of India’s new vehicle sales are diesel, and that number is expected to hit 50% by next year. In the European Union (page 13), there are several countries in which diesels make up more than 50% of new car sales (Austria, Belgium, Italy, Portugal), and nearly all the remaining countries are at 30% or more. Don’t forget about China, Russia, and Brazil, which are also quickly growing economies that demand more and more oil.

There of course are other factors influencing the price of diesel, such as taxes and production issues, but supply and demand is the biggest issue.