Why Is Diesel Fuel More Expensive Than Regular Gasoline?
Fueling stations display the prices of gasoline and diesel prominently. You may have noticed that oftentimes diesel is more expensive than regular gasoline. However, at other times, diesel is less expensive than gasoline. The reasons for these price fluctuations involves several different principles.
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Diesel vs. Gasoline
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Diesel and gasoline are both fossil fuels, meaning they are derived from petroleum or crude oil. However, diesel and gasoline have different chemical makeups and applications. Because they are distilled differently, gasoline and diesel are not interchangeable. Certain engines and equipment will run only with diesel or with gasoline--but not with both.
Supply and Demand
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The price of all commodities, including fuel, food, electronics and other consumable goods, is determined largely by the market. When a commodity is plentiful, the price goes down. However, if a product is in high demand, but less is available, the price will rise. For example, during a real estate boom, there were many buyers seeking homes but relatively fewer homes on the market. Homes in this situation were sold to the highest bidder. In the opposite situation, there are more people seeking to sell homes than there are people looking to buy homes. In this instance, prices drop to remain competitive.
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Taxes
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Taxes are another factor in the price of diesel. Diesel is taxed differently than gasoline at both the state and federal levels. This is because diesel is typically used for different functions. For example, gasoline is most commonly used in automobiles driven by commuters. Meanwhile, diesel is often used for agricultural vehicles and other commercial uses. These uses have different effects and make different demands on the public infrastructure.
To see a breakdown of diesel and gasoline taxes by region, see the API tax report in the Resources section.
Diesel Trends
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Seeking Alpha reported on the rising price of diesel in March 2008. According to the article, the rise in popularity of diesel cars, which reportedly get better mileage, has caused an increase in demand for diesel. The article also quotes the U.S. Department of Energy's official stance on the price of diesel, which stated that rising international demand for diesel, the U.S.'s transition to low-sulfur diesel and a higher federal excise tax on diesel accounted for the higher price.
History
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Diesel being more expensive than gasoline is a somewhat unusual trend. According to the Energy Information Administration, gasoline has typically been higher than diesel until several years ago. The only time that diesel prices would rise above gas prices was during the winter, when the demand for distillate heating oil is high.
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