Why Aren't Diesel Prices Dropping As Much As Gasoline Prices?

on Jan 01, 1970

Why Aren't Diesel Prices Dropping As Much As Gasoline Prices?

Drive by any gas station or truck stop in the United States and it's plain as day to see the huge drop in gasoline prices at almost every pump. In much of the country, prices have dropped below $2 for the first time in awhile. Take a look at the diesel prices, though, and the picture isn't quite as rosy. Sure, the prices are significantly lower than they have been, and that's a relief to the trucking industry, but they aren't dropping at nearly the rate gasoline seems to be.

According to Erin Roth, executive director of the Wisconsin-Minnesota Petroleum Council, it's all about supply and demand.

"The demand for gasoline is pretty flat in this country," said Roth. "With diesel, it's the opposite. Most diesel engines are used for transporting some mode of goods and services."

Trains, ships and over-the-road trucks are all propelled by diesel engines along with some modes of personal transportation. Add in that the part of a barrel of oil that makes diesel also makes kerosene, jet fuel and home heating oil and it's easy to start seeing why there's more demand, especially as the weather turns cold.

"On top of that, other countries use more diesel. In Europe, most of their vehicles are diesel," said Roth. "It's hard for companies to import diesel to the U.S. as opposed to finished gasoline."

According to GasBuddy.com, diesel prices in a state like Wisconsin are wide ranging. In Bowler, WI, diesel prices average $2.43 per gallon. Not that far away in Milwaukee, the average diesel price is $4.08 per gallon.

In spite of the knowledge that supply and demand is playing a bigger than expected role in diesel prices not dropping as far as gasoline prices, many are still perplexed. Something that throws consumers is that diesel prices are traditionally lower than gasoline, but that changed in September 2004, according to the U.S. Energy Information Administration (EIA). That has changed for a couple reasons:

- High worldwide demand for diesel and other distillate fuel oils along with a tight global refining capacity available to meet demand during the period of high economic growth from 2002 to mid-2008.
- Transitioning to less pollution, lower-sulfur diesel fuels in the U.S. have impacted production and distribution costs.
- The Federal excise tax for on-highway diesel fuel is 24.4 cents per gallon, which is six cents higher than the gasoline tax.

Roth made a great point that as the economy improves (due in large part to decreased gasoline prices), demand for goods will increase. That will, in turn, mean more trucks on the road and more demand for diesel fuel, which means prices in their current structure aren't likely to drop to the levels of gasoline any time soon.

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