Posted on 10/21/2009 3:38:00 AM PDT by IbJensen
Diesel fuel used to cost less than the more highly refined gasoline. Is there a real reason for this, or is it price gouging?
The main reason is rising global demand, but new environmental restrictions and higher federal taxes also are factors.
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, as can be seen in this chart, which is based on weekly statistics from the federal Energy Information Administration.
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. For the most recent week, ending May 19, regular gasoline sold for a national average of $3.79 per gallon at the pump, while diesel was $4.50. The price spread reached a record 22.4 percent in favor of diesel during the week ending March 24, 2008. That's a stark difference from the week of June 19, 2000, when diesel sold for 15.3 percent less than regular gasoline, the cheapest diesel has ever been relative to gasoline. So what's going on?
Rising Demand
If any illegal price manipulation is going on we've seen no evidence of it. The EIA cites other factors, chiefly high "worldwide demand" not only in the U.S., but also in Europe, China and India. In Europe, for example, diesel-powered automobiles have been outselling those with gasoline engines in recent years. 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. The number of all new passenger vehicles sold in India more than doubled in the past five years, according to statistics from the Society of Indian Automobile Manufacturers, hitting more than 1.5 million during the most recent model year. Diesel accounts for more than 30 percent of new vehicles sold in India and is expected to hit 50 percent by 2010. Just this month, Ford India, a subsidiary of Ford Motor Company, started production of diesel engines at a new engine assembly plant to turn out another 50,000 diesel engines a year for the local market. India's leading environmental group, the Centre for Science and Environment, is fighting what it calls a "mad craze for diesel" in the country, so far with little effect.
In China especially, diesel consumption has been soaring as the economy booms. The country also is reported to be importing diesel fuel for stockpiling, to avoid any interruptions in power during the Olympics in August. Energy traders also say they foresee even more demand for diesel fuel in China to run heavy equipment and emergency generators in the wake of the recent earthquake.
"Cheap" Gasoline
EIA experts also say that the widening spread results in part from a slackening of demand for gasoline due to high prices and a soft economy. "While gasoline prices have increased this winter due to surging crude oil prices, they have not risen as high as they would have if year-on-year gasoline demand growth was unfolding at normal rates," the EIA said in a report dated March 26. One analyst put it this way: "It's not so much that diesel is expensive; it's that gas is cheap." He was speaking in relative terms, of course. If motorists were still increasing their consumption as rapidly as they had been until recently, gasoline prices would be even higher than they are, and the gap between gasoline and diesel prices would be smaller.
Environmental Restrictions
Another factor given by the EIA is the transition to ultra lower-sulfur diesel fuels in the United States. New Environmental Protection Agency standards for diesel fuel sulfur content took effect in 2006, requiring that the sulphur content of diesel be reduced drastically, from a maximum of 500 parts per million to no more than 15 parts per million for 80 percent of all diesel sold for road use. By December 1, 2010, that standard will apply to 100 percent of on-highway diesel fuel. New sulphur standards for off-highway diesel fuel (such as fuel for generators, construction machinery and marine use) began to be phased in last year. The added processing is an expensive proposition, and the cost ultimately must be reflected in the selling price of the fuel.
In 2001 the EIA estimated that the new standards for ultra low-sulfur diesel fuel would require refiners to invest from $6.3 billion to $9.3 billion, and they would increase highway diesel fuel prices by 6.5 to 10.7 cents per gallon between 2007 and 2011. The report also held out the possibility of even higher price spikes if the new regulation led to a production bottleneck.
Higher Taxes
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's been true for years and 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. It does not explain why the spread has gotten so wide recently, however. Again, the main factor is demand.
Since I own two diesel vehicles I am, like many others, very concerned with the rising cost of diesel fuel.
Thanks to our 'central government' and its nonsensical additional taxes and their creating a new costlier formula for the fuel diesel passes regular gas in cost even though it costs much less to produce a gallon of refined gas than it does diesel.
What's effected isn't only my two passenger cards, but every truck that carries every loaf of bread and every dozen eggs to the store. Everything goes up in price at the store thanks to our lousy government!
Of course none of our elected Congressrats address this incredibly important issue because they're so stupid they don't understand the import of what they've unconsciously done.
How old is this article? Demand is down, supplies are at an all time high, I read yesterday. I have had diesels for 20 years and I saw diesel go higher than gas when they mandated low sulphur diesel. I thought that accounted for most of the increase.
Because you use a smaller percentage of oil from the same bbl of oil from which you use to make gasoline. Supply and demand.
If you’re not forced to buy it, it’s not gouging. Any purchase that you willingly make, no matter what price you agree to pay , is not gouging. Just because the price is more than you think it should be does not make it wrong.
My comment didn’t have to do with ‘gouging’ rather it was the taxes and the reformulation edicted by the moronic class of elites we have that make all our important decisions.
The ‘special’ formulation thought up by the idiots we call Congressthings is a big cost item.
...everything the government mandates cost the American citizen money....and it always benefits them
In Florida the federal and state taxes add about 55 cents to each gallon. Everything that Congress and the central government touches is just another proverbial nail being driven into the once vibrant economy. The special recipe that refiners must adhere to should be lifted as well as the ridiculous taxes.
BTTT
I had the same question when unleaded gasoline came on the scene. Why did it cost more for unleaded when lead was an additive?
The only organizations that price-gouge are those that exist in a parasitic relationship to the supply.
For instance: Exxon make 10c per gallon in profit. The British government makes $3.51 per gallon of petrol sold to British motorists and provides no service for this. That's gouging.
Kerosene is not subject to the road tax, or, I believe to the ultra-low sulfur mandate, and sells for considerably less per gallon.
Of course, you would have to pump it into containers and transfer it into your vehicle tank when you get home, lest you fall afoul of the "Authorities."
prisoner6
The highest in Central Florida is $2.89 as of yesterday.
Kerosene, Home Heating Fuel, and Diesel are all essentially the same product. Each have different additives in them for their different purposes, but they could substitute for each other in most cases. Each is taxed at a different rate, and to show which is which, each is dyed a different color.
If you're a trucker and are found with the wrong color fuel in your tanks at a weigh station or during a traffic stop, you are in for HUGE fines.
Putting Kerosene into your older diesel pickup truck might be OK, until the weather got very cold and the fuel turned to jelly because it doesn't have the low temperature additives.
Also, if you have a newer diesel vehicle that is designed to run on Ultra Low sulfur diesel, then the higher sulfur content will not be kind to the pollution control systems.
The reason gasoline is so cheap is that Europe and Asia have more diesel vehicles on the road than we do. A barrel of oil yields a certain percentage of diesel and a certain percentage of gasoline. Europe sells their excess gasoline to the US. If we all switch to diesel vehicles, gasoline will just get cheaper and cheaper.
No. Kerosene, or K1, is also known as winter fuel. It is excellent, though pricier.
Kerosene has more BTU than gasoline, that is why it costs more. This wasn’t always so, because the demand wasn’t there, and bean counters hadn’t got involved.
For many, many years diesel was priced lower than gasoline.
The reason that was always given for the difference was that it cost less to produce diesel because it was not as highly refined as gasoline. My dad was in the business and we always knew the current prices and differentials.
About the same time that the idea of diesel powered cars caught on, the price of diesel increased. A big part of that is because the government jacked the diesel tax up higher than the gas tax.
There are other factors too, but this is the most significant.
Anytime you find a way to economize, the federal government will find a way to tax it out of existence.
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