Why Is Diesel Fuel More Expensive Than Gasoline?

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.

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.