Why Diesel Fuel Costs More Than Unleaded Gas

Supplies and market pressures determine the cost of diesel fuel.

Diesel fuel frequently costs more than unleaded gasoline, due to variable supply and demand, seasonal and global market changes and higher taxes. The price you pay depends on many costs along the way from the refinery to the pump. The opposite was true until about 2004, when global demand and higher production costs in the United States combined to drive the price up, federal energy statistics show.

Diesel Facts

Despite the higher cost at fill up, you will get further for your dollar using diesel fuel than standard unleaded gasoline. Diesel offers up to 35 percent higher fuel efficiency, and diesel engines do not wear out as quickly as gas engines, the CarsDirect website points out. Diesel falls into the same category--distillate fuels--as heating oil, and refiners produce the two together. This connects the two prices, often with seasonal highs and lows, according to the U.S. Energy Information Administration.

Gasoline Facts

The cost for diesel and gasoline vary depending on the market, location and supply.

Gasoline engines cost less than diesel engines, and gasoline offers more horsepower than diesel. Unleaded gasoline passes more state emission standards because it burns much more cleanly than diesel, along with costing less at the pump, according to CarsDirect.

Market Factors and Taxes

The amount you pay for a gallon of diesel depends on the refinery’s cost for the crude oil and for refining it; intermediary costs like advertising and moving the fuel; fuel station costs and profits; and state and federal taxes, the Energy Information Administration notes. These costs shift considerably with time and location in the country. The fuel station’s location and the way the owner approaches business can also affect how much a gallon of diesel costs. The federal and state governments also take a cut, with U.S. excise taxes on diesel running about 6 cents higher per gallon than on unleaded gasoline by 2010, according to "Consumer Reports."

Supply and Demand

Supply and demand play a major role in the price of diesel, which depends on how much crude oil gets produced and consumed around the world. The Organization of Petroleum Exporting Countries--OPEC--commands significant authority over the price because it can set a production ceiling, having control over about 40 percent of all the crude oil in the world, according to the Energy Information Administration. Diesel prices skyrocketed in the summer of 2008, as the worldwide recession began and supplies became tight, "Consumer Reports" notes.

International Effects

The United States and Europe take different approaches to fueling their vehicles, which affects the cost of diesel fuel. Other countries use more diesel than unleaded gasoline, with just more than half of new cars and light trucks sold in Europe having diesel engines by 2010, according to the Energy Information Administration. This drives up the demand for diesel fuel, as does heavier use of the fuel in China and South America for electrical power.

References

• U.S. Energy Information Administration: Factors Affecting Diesel Prices
• Cars Direct: Diesel Fuel vs. Unleaded Gasoline: Understand the Pros and Cons
• "Consumer Reports: Cars Blog; Why Does Diesel Fuel Cost So Much"

Resources

• U.S. Energy Information Administration: Factors Affecting Gasoline Prices: