Question of the day - Why are diesel prices so much higher than gasoline?

April 2nd, 2008 at 10:27am Thomas V. Bona

I’ve gotten several calls that are basically variations on the theme, “If diesel fuel is cheaper to make, why does it cost more than gasoline?” The shift happened around 2004, according to the U.S. Energy Information Administration, and has only gotten worse. According to AAA’s fuelgaugereport.com, the nation’s average diesel prices were 16 cents higher than gasoline prices a year ago; Now they’re 74 cents higher.

The EIA takes a stab at explaining this:

Historically, the average price of on-highway diesel fuel was usually lower than or close to the price of regular gasoline. In some cold winters demand for distillate heating oil pushed diesel fuel prices higher. Since September 2004, diesel prices have been higher than regular gasoline prices almost continuously for several reasons:

• High worldwide demand for diesel fuel and other distillate fuel oils, especially in Europe, China, India and the United States, and a tight global refining capacity available to meet demand.
• The transition to lower-sulfur diesel fuels in the United States is affecting diesel fuel production and distribution costs.
• The Federal excise tax on on-highway diesel fuel is 6 cents per gallon higher (at 24.4 cents/gallon) than the tax on gasoline.

I know that’s little comfort for those feeling the pinch, but it’s at least part of the explanation. I think the first point - increased global demand - is a key all around.

Have a question about transportation related topics? Contact me at 815-897-1343 or tbona@rrstar.com and I’ll do my best to find an answer.

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