Sunday, April 20, 2008

How can Diesel cost so much????

Until several years ago, the average price of diesel fuel was usually lower than the average price of gasoline. In some winters when the demand for distillate heating oil was high, the price of diesel fuel rose above the gasoline price. NOT ANYMORE!!!

Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the U.S., putting more pressure on the tight global refining capacity. In the U.S., the transition to low-sulfur diesel fuel has affected diesel fuel production and distribution costs. Also, the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline.

(2006 Retail Diesel Fuel Price Breakdown, Energy Information Association)

There is little magic to this issue, and though we expect prices on Diesel to retract partially, it is unclear where they will stay vis-a-vis those on gasoline.

Our opinion is that they will rationalize and pull back below the level of prices on gasoline. When?? If I knew that I would be in Vegas instead of at a car company.

(Thank our government and the Energy Information Association for this data.)


Anonymous said...

diesel costs more to produce than gas per the refinery process. given the way fuel or petrol is taxed in Europe, its easier to determine why diesel powered cars capture a large part of the passenger car market. it will be interesting to see if oil prices maintain their current levels if different fuels will be subject to a differentiation in tax, down the road.

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