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Why is Diesel Fuel More Expensive Than Gasoline?

The price of diesel is controlled by the laws of supply and demand.
Some vehicles require diesel fuel.
Paying more for diesel than gasoline is one issue to consider when buying a pickup truck.
There are often higher excise taxes placed on diesel fuel than on standard gasoline.
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  • Last Modified Date: 03 October 2014
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Diesel fuel, the kind of fuel commonly used in commercial trucks, has not always been more expensive than the standard gasoline used in passenger vehicles. On paper at least, diesel fuel is a less refined petroleum distillate than gasoline, so it should always be cheaper to produce than gasoline. The problem with diesel fuel prices has more to do with the laws of supply and demand for various petroleum products, not the actual cost of production.

A barrel of crude oil can be "cracked," or broken down into a number of different products, from home heating oil to gasoline to kerosene. Oil refiners can only process a fixed number of these products at one time, however, so they tend to choose the products in highest demand at the time. This generally means gasoline for passenger vehicles takes precedence over diesel fuel for commercial vehicles. When the supply of diesel fuel is low, the price naturally goes higher.

At some point in the year, oil refiners concentrate their efforts on another product similar to diesel fuel: home heating oil. At this point, usually just before winter, diesel fuel becomes more plentiful and the price usually drops. This trend doesn't always hold true, however, since a particularly cold winter can keep demand for home heating oil high and once again put diesel fuel production lower on the refiner's agenda.

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In recent years, the federal government has mandated changes to the acceptable sulfur level of diesel fuel, and refiners must comply with these mandates to create an ultra low sulfur diesel fuel product. This means significant investments in new technology and several distillations before the finished fuel is deemed acceptable by government inspectors. All of these additional regulations and high-tech equipment can cost billions of dollars, and these expenses are often passed onto consumers through higher prices.

There are also higher federal excise taxes placed on diesel fuel compared to standard gasoline. Some critics suggest the federal government is less eager to impose higher taxes on millions of private drivers than thousands of commercial drivers who use a less popular fuel. Part of the reason diesel fuel is more expensive than gas is the total amount of federal and state taxes added to each gallon.

In many other countries, diesel fuel is still much cheaper than petrol, and there are significantly more diesel-powered passenger vehicles on European and Asian roadways. If more drivers in the United States were willing or able to switch to diesel-powered vehicles, the price per gallon of diesel fuel might begin to fall below that of gasoline. More refineries would have the financial incentive to process more diesel fuel during peak driving months, and more fueling stations would offer standard diesel or the more ecological friendly bio-diesel at competitive prices.

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anon932289
Post 32

Let's shut our trucks off for two weeks and see what happens.

anon356065
Post 31

@anon353233 is absolutely correct. Our rent-a-politicians, from the most newbie state assembly man/woman to the White House are owned, lock stock and barrel by the power elite, of which the petroleum industry is at the top of the heap.

So, the answer can only be to do what strikes fear into the hearts of legislators or their owners. They know our gripes. They know the real reasons for illogical pricing differentials before we do. So explaining has no weight. Only fear will cause a correction. They are listening carefully. They are smart and they have vast resources. So your only option is your numbers and your ability to invoke fear. How about three days of carefully, safely and coordinated blocking key freeways across all major cities in the country? It would take about 500,000 people.

It would take about three days to change policy if such a blockade were accompanied by a clear and direct message, such as an export tax on refined fuel products, or no export of fracking-produced petroleum. Or simply invoking the anti trust laws and anti vertical integration Teddy Roosevelt used to break up these same monopolistic cartels over 100 year ago. Real competition would take care of a lot of this. The laws are on the books. Ever ask why they are no longer enforced? Power Elite owns your government. All of it. Check it out. Cheers.

anon353233
Post 29

These posts remind me of H L Mencken: For every complex problem, there is an answer that is clear, simple -- and wrong. For example: if it were a real capital economy, diesel would cost less, as it is less costly (generally) to refine. However, it has been a very long time since pure economic forces were in play. The very powerful, very rich, very sophisticated oil companies have got the majority of lawmakers in their back pockets. It is a complex, carefully managed interlocking web. It’s hard to tell exactly which factor is more in play at which point in time. But they all are, as opportunity arises. So the price of fuel, like everything else, is not only market driven, but artificially jacked around as the opportunity to steer regulations arises for the oil companies.

I find it remarkable that the US is now the second largest crude petroleum producer in the world and is far and away the largest refined petroleum exporter in the world. We sell gasoline to Iran! (Indirectly, of course.) Your prices are kept up by international demand, and you suffer the pollution of fracking and refining so oil products can be exported where prices are higher. How about an export tax on this stuff?

If it were a truly open competitive market, diesel should be perhaps 15-20 percent less than gasoline at the pump.

anon348629
Post 28

I can't buy any of these arguments. If you look at the price of diesel in Canada, it is $0.02 cheaper than gasoline there. I love my TDI Jetta at 47 mpg and believe that there is some underlying reason such as the US car manufacturers can't do it (Government Motors GM offers a diesel Cruz but it has to have the urea tank) but VW makes it work without. My Jetta burns clean (I really want it to roll coal like my Cummins) and has incredible drivability.

Perhaps Jimmy Haslam is controlling diesel prices as his company dispenses most of it in the US via Pilot and FlyingJ (perhaps the rebate scandal is just the tip of the iceberg). People tend to cut back on gas consumption when the price is high, but the semis still have to haul so they have no choice.

anon344435
Post 27

Let me make this real simply: The oil companies are crooks and greedy and don't care about America. The politicians are even worse. Welcome to America, the great capitalist country.

anon319088
Post 24

Ye,s it may be about supply and demand, but the scoundrels in the oil companies control the supply.

I am quite sure there is a lack of diesel passenger cars in the U.S. because they are much more fuel efficient, and they definitely are. More diesel cars would lead to less fuel consumption and lower profits for the oil industry. Technology has improved enough that diesel cars burn as clean as gasoline engines.

Another scam I would like to mention is recommended oil changing intervals. My last car -- a gasoline Mazda 323 which I sold last year -- had a recommended oil change interval of once every 9,000 miles (in Europe). I drove that baby for twelve years and not once did I have engine problems. In the U.S. they recommend oil changes every 3,000 miles for the same car.

Last year, I bought a new VW Sharan. Here in Europe, they recommend changing oil once every 19,000 miles. I was in the U.S. last year at a VW dealer. I saw a Routan (similar to my car). The dealer told me VW recommends an oil change once every 10,000 miles. It is all a scam. The oil industry has been preaching for years to people that they need to change their oil every 3,000 miles and now they all believe it. It is crazy to think people in the U.S. are changing their oil two to three times more often than the rest of the world. The oil and auto industry are working together on this.

You can be gullible enough to believe what the industry wants you to believe, or you can wake up and realize that where money is to be made there will be scoundrels (oil and auto industry) trying to maximize those profits even more.

anon302699
Post 23

Diesel and gasoline are available in all crude, sweet crude= more gas. Brent crude is sweeter, and typical American domestic (continental) has more diesel.

It is possible to tweak it a little, but the spectrum of distillate from cracking sweet or heavy crude is all that is available, from propane, butane, gasoline, JP, kerosene and diesel to heavy bunker fuels.

anon283440
Post 21

Supply incorporates costs so a lower cost translates to greater supply, cet. par. Changes in supply do not affect demand (which is the entire schedule) but does affect the quantity demanded (a point on the demand curve).

So there are actually two markets: one for diesel and one for gasoline with separate demand curves and separate supply curves. Economics says that the producers will allocate toward the market with the greatest profit until the two generate the same return. Basic economics calls this "price discrimination".

anon273908
Post 20

I don't see where the demand for diesel is lower at all! I see more trucks on the road now than ever before, and charging more money for diesel fuel is just one more way for oil companies to line their pockets and increase the cost of goods shipped by trucks. Let's be honest, here!

anon254653
Post 19

I also believe the price of diesel is kept high to discourage the populous from buying gasoline powered cars. If all cars were diesel, the fuel prices would rise accordingly. Just like water rates increased when we all cut back on water consumption, and let our lawns and gardens die. What happened was the water rates were increased because not enough water was used and not enough revenue came in to pay the salaries of the DWP employees. That is what happened in Orange County. So I think the price of diesel will always be higher.

anon218711
Post 17

Congress created much of the problem when they allowed exxon mobil and conoco phillips to merge. This eliminated a great deal of competition.

anon213998
Post 16

Most of the general public is not aware of shipping fuel surcharges and how the increased cost of diesel is passed on to the the public.

anon171140
Post 14

My current car is diesel (in UK). I get around 70mpg from a VW Polo TDI. Prior to my current Polo I had a petrol, before that a diesel. I switched to a petrol car (40mpg) because diesel was more expensive, prior to that diesel was cheaper.

Even though Diesel is still more expensive than gas, the higher MPG still makes it more cost effective here in UK.

The oil companies are certainly playing the consumer, changing the prices as and when different fuel types become popular.

anon160510
Post 13

But there actually is a club of "really rich guys sitting around smoking cigars, rubbing their hands together conspiring how to screw the poor drivers." And thinking that the prices of oil are set and determined solely on market demand is extremely naive.

The oil industry is one of the most political and powerful forces in the world's economy and it is extremely corrupt! Don't tell me that you don't believe in price fixing, when our government recently said they were going to look into that as a possible reason for the increases. These oil barons do not have your best interests at heart, or they would not have killed the electric car, they would not have prevented a viable public transportation system in Los Angeles. Yes, they lobbied and killed public transportation in L.A.

Maybe you don't believe that the heads of the banking giants knew about the coming economic tsunami, either. But then again, they made a fortune off of everyone else's losses.

anon158924
Post 12

I get a kick out of the comments about the "oil barons" ripping off the public, as if there is a club of really rich guys sitting around smoking cigars, rubbing their hands together conspiring how to screw the poor drivers. All forms of oil products are priced according to market forces. Crude oil is a commodity traded in the market by thousands of people speculating on what the demand will be in the future, among other things. Some of those traders represent investors in funds and other instruments that end up in 401ks and IRAs we use for retirement. The irony is "the man" is us.

anon158056
Post 11

No one is considering the federal requirement for on road diesel to be dyed (and taxed) differently then off road diesel. This law was passed to help the farmers and off road diesel users - but based on supply and demand and oil companies being required to have two types of diesel - only color is the difference - caused diesel to cost more. This wasn't the oil companies' idea.

anon157404
Post 10

Same old story: The oil companies take advantage of the public who use diesel powered equipment and trucks. There should be more regulation of retail gas outlets to bring the price between gas and diesel fuel on the level.

anon154995
Post 9

From my prospective, supply and demand does not influence the price of fuel anymore. Diesel fuel is on average $0.40 higher than gasoline all year long.

Americans would buy more fuel efficient cars if they were available. Toyota, Nissan, Honda, Mazda all sell Diesel cars all over the globe. Even Ford, Chrysler and Chevrolet sell diesel cars in Europe. You could buy a PT Cruiser diesel in Germany. Not in the US. Why? Because the US is not interested in fuel efficient cars. That would decrease their fuel tax revenue. Why bite the hand that feeds you?

Therefore, the EPA implemented such a high emission standard that for most car manufacturers, it is not worth it to comply with. Only VW and Mercedes could take them on. High diesel prices make everything more expensive in our daily lives. Diesel fuel powers the economy, not gasoline. The farming and trucking industry, the railroad all depend on diesel fuel and if the price is high it is passed on to the consumer. Diesel prices should be somewhat regulated because there is too much greed in the supply chain.

anon148660
Post 8

All that drivel sounds like garbage the oil barons would throw at the masses.

The bottom line is that (a) fuel oil and diesel are the same thing and therefore shouldn't vary too much in price unless taxed differently, (b) the oil barons, in an effort to jack up prices after consumers decided to reel in their gas use, closed several refineries, which the conveniently have not reopened (not that that would alleviate the strain on the average American's wallet or create job openings), and finally, since there's hardly any regulation on gas retailers, who are permitted to make prices totally unrelated to what they paid or what the barrel costs and amazingly higher for the holidays.

anon148163
Post 7

In my opinion, the recession started when the fuel prices first went up. The economy will never improve until the cost of diesel goes down. Surcharges are the main cause of all products prices going up. If it costs more to get it to the store, it will cost us more to buy it.

anon137444
Post 6

The last time this happened they had shipped millions of gallons out of the country so we would have a shortage and the price could be raised.

anon128733
Post 4

It is my opinion that the commercial vehicles using diesel require a much greater quantity per day of operation and that diesel gallons used per day in the united states would be surprisingly close to petrol usage. Oil companies are getting rich off of corporate and government usage of diesel.

anon121684
Post 3

10 or 15 years ago when there were many fewer diesel cars on the road, diesel was much less expensive then gasoline, so i don't believe it has anything to do with use of diesel. I'm betting the oil companies see the increase in diesel cars as a threat to gasoline sales and therefore choose to push the price up artificially.

anon114472
Post 2

Maybe because the wholesale diesel diesel you describe does not include federal and/or state tax? See paragraph 5.

anon92188
Post 1

if this is true, then why 1s wholesale diesel less expensive than gasoline?

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