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Why Is Diesel Fuel So Expensive?

hpmctorquehpmctorque Posts: 4,120
In some states and localities, diesel fuel costs more than premium gasoline. Why? I thought less refining is required to produce diesel fuel than gasoline. In Europe diesel costs less than gasoline, so maybe it's a political and tax issue.

Also, will increased demand for diesel fuel, resulting from increased sales of diesel vehicles in the future, have the unintended effect of increasing the price of heating oil, similar to how greater ethanol production drove up the price of corn?
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Comments

  • jlawrence01jlawrence01 Posts: 1,828
    It goes in cycles. At times over the past three years, diesel has been considerably LESS than unleaded gasoline.

    I am NOT a petroleum expert. However, from what I have read, the price of diesel is affected by strong demand for heating oil which is the fuel of choice for heating homes in the New England and Midatlantic regions.
  • texasestexases Posts: 5,424
    Yes, supply and demand. I imagine the new low-sulfur requirements has tightened supplies.

    Also, there's more BTUs in diesel, so on an energy-content basis, it should cost more.
  • andys120andys120 Loudon NHPosts: 16,400
    However, from what I have read, the price of diesel is affected by strong demand for heating oil which is the fuel of choice for heating homes in the New England and Midatlantic regions.

    This makes some sense, Inhave read that automotive diesel oil is similar to #2 heating oil. In New England the price of both shoots up in winter and declines in Spring. It is cheaper than 87 Octane in summer but in winter it's almost as much as 93 RON.
  • tpetpe Posts: 2,342
    I'm no expert on this matter but I know that when refining a barrel of oil different products are distilled at different temperatures. Diesel fuels and other distallates are produced at the higher temperatures. There are 42 gallons in a barrel of oil. You cannot choose to produce either 42 gallons of unleaded gasoline or 42 gallons of diesel. I imagine it's adjustable to some extent but typically you're going to get twice as much gasoline as diesel, maybe a little more gasoline. The diesel fuel supply in this country is pretty well spoken for by the airline industry, the truckers and the demand for heating oil. So an increase in diesel vehicles would in all likelihood drive up the price of diesel.

    European countries, with their diesel fleets, have a surplus of unleaded gasoline. They export this surplus to places like the US and Japan. If the US stopped importing their gasoline I'm sure it would change the dynamics of how they priced fuel in Europe.
  • texasestexases Posts: 5,424
    European countries, with their diesel fleets, have a surplus of unleaded gasoline. They export this surplus to places like the US and Japan. If the US stopped importing their gasoline I'm sure it would change the dynamics of how they priced fuel in Europe.

    That's right. I asked my brother, a refinery engineer now working on marketing for a major refiner, about the gas/diesel balance, and here's what he said:

    The current U.S. refining industry has only limited capability to generate more diesel versus gasoline in the short term. In fact, I personally believe the diesel market in the U.S. will Not take off like it did in Europe for three reasons:
    1) Europe's rapid dieselization was heavily subsidized by preferential tax policies vs. gasoline. This type of aggressive social engineering is not as likely to occur in the U.S.
    2) Diesel engines are significantly more expensive to produce than comparible gasoline engines and do not have a broad history of usage in passenger vehicles in the U.S. like in Europe.
    3) Most importantly, the Europe's dieselization was essentially "costless" in terms of refining capital expenditures, as European refiners simply cranked up their excess refining capacity to make more diesel and gasoline, selling the excess gasoline to the U.S. In fact, the U.S. imports roughly 1 Million Barrels of gasoline and gasoline components from Europe every day!

    In other words, Europe's dieselization was done on the back of the U.S.'s continued consumption of (relatively cheap) gasoline. If the U.S. were to "dieselize" in any significant manner, it would require 10's of Billions of Dollars in refining capital expenditures for process units such as Hydrocrackers to shift the product mix from 2/3 gasoline ~ 1/3 diesel to half & half gasoline and diesel.
  • The truth of the matter is in reading between the lines. Diesel is not expensive in reality due to supply and demand, but that is what the mass media and experts would have you believe to be true.

    You remember when oil first soared out of site after Katrina??!! That taught the oil refineries something very important for them. Not that Supply and Demand is important, but that they can actually manipulate supply and demand to regulate the pricing. Think I'm full of it, start doing your own research, please..!!! The oil CARTELS and yes that is what they are, now know that they don't need to keep the large reserves in this country up to full capacities (and I'm not counting the military reserves, which are good for approx 100 years or so) but the public reserves. They have the oil, already refined to light sweet crude stored outside the USA and they bring it in as they need to control the pricing. If they keep the supplies low, they can keep the price high. So in effect yes, it is supply and demand, but it isn't just natural S&D, rather a regulated version of it. The other side of the coin is the EPA standards. I'll bet you did not know there is approx 70 different grades of diesel fuel out there and I'm not talking about type 1 or type 2 winter vs. non winter mix either. There is different sulphur amounts per grade of diesel fuel depending on where you live in the USA and what the local EPA branch determines is fit for that area. CA having some of the highest pollution rates, has the higer prices for diesel fuel as they must refine it more than other places. That is politics my man !

    The is ALOT MORE going on then simple S&D formulas to high diesel prices. Start reading things like MOTHER JONES magazine (the alternative media sources) and go to other countries websites and see what they saying about the USA (get the translated copies of course) and you'll be shocked and also you'll get the full story, not what the USA media wants you to hear....

    Good Luck !
    Don't be one of the sheep! BE A WOLF !
  • Now, now: the price of a Mercedes E Class diesel is $1000 US more than the V-6 gasoline 350 engine. Guess its what you define as "significant"
  • texasestexases Posts: 5,424
    the price of a Mercedes E Class diesel is $1000 US more than the V-6 gasoline 350 engine

    True, but MB's an anomaly. The VW TDIs were typically $1500 more, a much bigger % increase. I've always wondered how MB does it so cheap - is there a difference in equipment levels? And the basic point is that we can't quickly switch to a higher diesel % usage without expecting the already high diesel fuel price to increase. It starts taking a lot of miles to pay off that $1000-$1500 when diesel's more expensive than gas.
  • gagricegagrice San DiegoPosts: 28,681
    There is one silver lining in owning a diesel. When Katrina hit many stations ran out of regular gas. They still had diesel. Plus the much longer time between refueling is a plus. When I bought my Passat TDI in 2005 it was only a $200 premium. When I sold it with 8000 miles and made $3000 over what I paid new, it proved I was right about buying diesel vehicles. There is this window of opportunity that we are in currently with buying and selling diesel cars. You can buy one new in most states and drive it for 7500+ miles and list it for sale in CA and get your money back with interest. There are several people doing that on Craigslist. The VW TDIs are the preferred. I think selling used MB diesels may be less lucrative.
  • dtownfbdtownfb Posts: 2,915
    The other thing you forgot to mention is how the oil companies will shut down refineries for "maintenance" during peak times or as you mentioned to control the surplus.

    When companies like Exxon make record profits in a quarter and spend $500 million a year to pay off...I mean lobby on Capitol Hill, something is not right. In our capitalistic society, follow the money to find out how things really work. You'll see gas come down despite the fact it is in the middle of winter and we are using more oil. The hiccups, corrections, downturn (or whatever you want to call it) in our economy is having a ripple effect around the world. How the US economy goes, so goes the rest of the world. Energy costs (along with medical expenses) are at the heart of our economic problems.
  • texasestexases Posts: 5,424
    When companies like Exxon make record profits in a quarter and spend $500 million a year to pay off...I mean lobby on Capitol Hill,

    Hmm - where did you get the $500 million number? And, as for profits, many companies have higher profit margins. IIRC, the oil companies average 11% recently, and, say, Procter and Gamble is at about 13%...

    Nevermind, I just looked it up, Exxon's been spending $7-8 million a year. Slight error, but what's a factor of 70, anyway :surprise:
  • gagricegagrice San DiegoPosts: 28,681
    Exxon's been spending $7-8 million a year. Slight error

    I wonder how much Archer Daniels Midland and VeraSun spent in Washington DC to get their sweet ethanol deal pushed through Congress? I don't remember Congress giving any subsidies to Exxon when the price of oil dropped to $9 in 1998. It's OK when the oil companies lose money. Not when they have a good year. Shell just had their best year ever. Yet it was only 8.8% profit. If my 401K does not do at least that well I get concerned with my investments.
  • dtownfbdtownfb Posts: 2,915
    Don't get me started on ethanol....what a joke!. :mad:

    I have no problem with companies making a profit. I understand how the corporate world works with investors and return on money. I get it. It's what keeps America going. Of course my 403B took a hit last quarter. thankfully i have 25 more years of investing.

    I have a problem with all of the excuses that have been given for the major variations in gas prices. First, it's supply is low and demand is up (makes sense); Then it was the distribution lines were compromised (Katrina); then it's the refineries are at maximum capacity and we haven't built any in over 20 years or so (of course they don't mention that we can get refined oil from other parts of the world, sometimes cheaper then it can be done here); then it's summer time, demand is up but for some reason the gas prices went down because gas surplus is up. (How is surplus up when demand is high and we are operating near refinery capacity? hmmmm). A bomb goes off in Africa, raise gas and oil prices because of the turmoil there (there's been turmoil in Africa as long as man has inhabited the earth). I think you get my point and why I get frustrated. :sick:

    It should be very easy to explain fluctuations in gas and oil prices. Sure there will be some abnormality that breaks from the rules but then a further explanation should clarify it. I consider myself fairly intelligent and I have demonstrated over my 40 years of life that i can comprehend most topics if it is explained to me. This has been explained to me on a few occasions and I come away with more questions then answers. I figure if I am struggling with this topic, so are most Americans.

    I wish they would come out and say "we have the oil and you don't, so we charge what we think you should pay". At least then we have the truth and I don't have to listen to the talking heads trying to explain this fiasco.
  • dtownfbdtownfb Posts: 2,915
    Actually the number I got is $16 million for 2006 (watchdog website). I guess the question is why do they need to spend even that much for a product that we all need? I know, I know, why does any company need to lobby?
  • texasestexases Posts: 5,424
    That's the 2006 number, which was an anomaly (check out the history here ExxonLobbyHistory, If you look around that web site, you'll find many companies and industries that spend more than the oil industry. Why spend? Congress is constantly considering laws that would have a great impact on Exxon - they would be irresponsible to their shareholders (and there are millions of them) to not do what is legal to protect their interests.
  • dtownfbdtownfb Posts: 2,915
    I am sooooo tempted to start with the lobbying aspect. But this is not a political forum and I will simply accept your explanation my friend.

    good website. I think the number my friend gave me, $500 milion, is a total of all the oil & gas companies over the past 10 years. That fits what the website shows. Still too much money. Of course the question is who gets this money and who is looking out for Joe Public?
  • texasestexases Posts: 5,424
    Would I prefer the whole lobbying industry disappeared tomorrow? Absolutely! But I don't get to make those rules....
  • dtownfbdtownfb Posts: 2,915
    And Congress knows better then to ask the American people about the lobbying rules. I will admit that some lobby groups are good for the general public.

    Back to our show......
  • oldfarmer50oldfarmer50 Posts: 6,020
    Has anyone considered the impact of ultra-low sulphur diesel on prices? I see this being mandated for all engines made after 2007. I'm thinking that this has to be more expensive to refine.

    Also to go slightly off-topic. Someone posted that oil was $9 a barrel in 1998. How in the hell could supply-demand push it up to $109 10 years later. Unless they are drinking it in China there has to be some funny business going on.

    2009 PT Cruiser, 2008 Eclipse, 1995 Mark VIII, 1988 GMC Van

  • texasestexases Posts: 5,424
    Well, that $9/bbl price was the historic low price, ever, so no need to compare where we are today to that.
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