Why Is Diesel Fuel More Expensive Than Unleaded?
The prices of diesel fuel and gasoline share some underlying characteristics, but there are some important differences that affect the price between these two major types of fuel. Here's a quick overview of the factors affecting the prices of diesel and unleaded gasoline.
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History
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Diesel engines have remained the preferred choice for industrial use because of their greater efficiency for transporting heavy loads over long distances. Diesel engines have historically been more reliable and safer to operate, given the less volatile characteristics of diesel fuel.
Cost of Crude Oil
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The refinement of both diesel and gasoline starts with the purchase of crude oil. The largest factor in the cost of either fuel is the market driven price of crude oil.
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Taxes
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In the United States, diesel is taxed higher than gasoline. According to the American Petroleum Institute, as of October 2009, federal taxes on diesel were 24.4 cents per gallon vs. 18.4 cents per gallon for gasoline. The logic behind higher taxes for diesel is to compensate for the greater wear on roadways resulting from the transportation of heavier loads.
Production Costs
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Social and political trends have also affected the price of diesel as producers seek to create "cleaner" or "greener" formulas, which mean removing more undesirable components, such as sulfur. The trade-off to produce cleaner diesel requires a higher cost of production, thus a higher cost to consumers.
Supply and Demand
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As with all things in a free-market economy, when they are not artificially tampered with, the price is the result of demand. Since the major forms of transportation for goods by trucks, trains, maritime vessels rely on diesel fuel, as the economy demands more goods, more goods are shipped and the demand for diesel increases. This demand causes more overall output and increases prices. When recession hits an economy and less goods are in demand, the price of diesel falls.
Summary
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As long as the demand for transporting goods remains high, coupled with higher taxes and production costs, diesel prices will remain higher than gasoline. For ongoing study of diesel vs. gasoline prices, side-by-side comparative charts are available from the U.S. Energy Information Administration website, see Resources below.
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References
Resources
- Photo Credit Image by Flickr.com, courtesy of David Fulmer
