Ameer Randolph
Diesel fuel prices have been higher than regular gasoline prices since September 2004, and they continued to climb in 2025. In the week of January 13, 2025, the national on-highway diesel fuel price average was $3.602 per gallon, up 4 cents from the previous week. This increase in diesel prices can be attributed to various factors, including the cost of crude oil, which regularly accounts for about 50% of end consumer prices. Additionally, international demand for distillate fuel, which is used in diesel engine cars, can influence price fluctuations. Economic trends, supply and demand, and seasonal variations also play a role in the pricing of diesel fuel.
| Characteristics | Values |
|---|---|
| Diesel fuel prices | High |
| Reasons for high prices | U.S. refinery closures, the war in Ukraine, higher tax, pandemic, Russia's invasion of Ukraine, demand for components in marine vessel fuel, supply constraints |
| Comparison with gasoline prices | Higher |
| Seasonal fluctuations | Prices are lower than the previous year due to tepid gasoline demand and weak crude oil prices |
| Crude oil prices | Crude oil accounts for around 50% of end consumer prices of diesel |
| Supply restrictions | Russia's invasion of Ukraine and the subsequent ban on Russian oil imports to the U.S. have impacted the supply |
| Diesel demand | High demand for diesel fuel in Europe, China, India, and the United States |
| Diesel vehicles | Diesel vehicles are mostly used for large commercial vehicles due to better fuel economy |
| Diesel availability | Generally less available than gasoline |
| Diesel price outlook | Experts predicted a decline in 2024 and a further fall in 2025 |
| New Zealand diesel prices | Weekly monitoring of national average prices and retail importer margins is conducted |
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What You'll Learn
Demand for diesel fuel is high
Diesel fuel prices have been higher than regular-grade gasoline prices since 2004. This is a break from the historical pattern, where diesel fuel prices were usually lower than gasoline prices. There are a few reasons for this:
Firstly, the demand for diesel fuel and other distillate fuel oils has been relatively high, particularly in Europe, China, India, and the United States. This demand is influenced by seasonal variations, such as increased heating oil demand during colder months, and regional variations, such as higher prices in areas farther from the Gulf Coast, a major source of U.S. diesel fuel production.
Secondly, the transition to less polluting, lower-sulfur diesel fuels has impacted production and distribution costs. Refiners are required to reduce the sulfur content of on-highway diesel fuel, which results in higher operating and capital costs. This is particularly noticeable in California, where stricter regulations further increase costs.
Additionally, the federal excise tax for on-highway diesel fuel is higher than the tax on gasoline, contributing to higher prices at the pump. Diesel fuel prices are also affected by transportation and delivery costs, supply issues, and local market conditions, including the location and ownership of retail outlets.
While prices have experienced fluctuations due to factors such as the pandemic and geopolitical conflicts, the consistent demand for diesel fuel reflects the overall health of the economy.
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Refinery closures and war impacted supply
Refinery closures and rising consumption are expected to reduce US petroleum inventories in 2026, according to the US Energy Information Administration (EIA). The EIA forecasts that inventories of the three largest transportation fuels in the US—motor gasoline, distillate fuel oil, and jet fuel—will fall to their lowest levels since 2000.
Two pending refinery closures will reduce US production of refined petroleum products. The shutdown of a large refinery like LyondellBasell's in Houston, a global leader in polymers, petrochemicals, and refined products, will likely constrain supply and affect fuel markets both domestically and abroad. The refinery produced approximately 140,000 barrels per day (bpd) of gasoline and 100,000 bpd of diesel before its closure, a large portion of the US's combined export total.
Phillips 66 also completed the transition of its Rodeo refinery near San Francisco into a renewable diesel production facility that no longer processes crude oil. With the end of operations at its Wilmington plant in Los Angeles, the company will stop all crude oil refining operations in California. The Wilmington refinery accounts for about 5% of West Coast refining capacity and about 8% of California's refining capacity. The lost petroleum product supply from this refinery will likely need to be met through higher utilization of other California refineries and increased imports of products such as gasoline.
The reduction in diesel production capacity due to refinery closures is expected to contribute to tighter diesel supplies, potentially impacting export volumes. The EIA predicts that biodiesel and renewable diesel will comprise about 9% of the distillate fuel market in 2026, affecting balances and prices.
The impact of refinery closures on fuel supplies and prices is influenced by various factors, including alternative supply availability, refining capacity adjustments, and shifts in demand for refined products. The transition to less polluting, lower-sulfur diesel fuels in the US has also affected diesel fuel production and distribution costs.
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Diesel fuel is highly taxed
Diesel fuel prices have been higher than regular-grade gasoline prices since 2004. There are several reasons for this, including relatively high demand for diesel fuel, especially in Europe, China, India, and the United States. The transition to less polluting, lower-sulfur diesel fuels in the United States has also affected diesel fuel production and distribution costs.
In the United States, the federal excise tax for on-highway diesel fuel is 24.4 cents per gallon, which is 6 cents per gallon higher than the federal excise tax on gasoline. This tax was last raised in 1993 and is not indexed to inflation, which has increased by 111% from October 1993 to December 2023. As a result, the purchasing power of fixed-rate gas taxes has declined. To offset this loss of purchasing power, a report in February 2009 recommended a 15-cent increase in the diesel tax and a reform tying the tax rate to inflation.
In addition to the federal excise tax, state and local taxes and fees also apply to diesel fuel. As of April 2019, these taxes and fees added an average of 35.89 cents to diesel fuel, resulting in a total US volume-weighted average fuel tax of 60.29 cents per gallon for diesel.
While diesel fuel prices may fluctuate due to seasonal variations and demand, the taxes imposed on diesel fuel contribute significantly to the overall price. These taxes are used to support various programs, including highway and bridge construction, and mass transit projects.
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Crude oil prices influence diesel prices
Crude oil prices are influenced by a multitude of interconnected factors, including supply and demand dynamics, geopolitical tensions, and market mechanisms. These factors can cause crude oil prices to fluctuate, which in turn affects diesel prices.
One of the primary factors influencing crude oil prices is the balance between supply and demand. When supply exceeds demand, prices tend to decrease, and when demand exceeds supply, prices rise. For example, during cold winters, the demand for heating oil increases, which can push diesel fuel prices higher. Additionally, refinery utilization rates can impact supply. When refinery utilization rates decrease, there may be an oversupply of crude oil, leading to lower prices.
Geopolitical events and severe weather can also disrupt the flow of crude oil to the market, affecting prices. For instance, the Russia-Ukraine conflict influenced energy markets, causing prices to surge in 2021 and 2022 and contributing to higher diesel prices. Additionally, OPEC (Organization of the Petroleum Exporting Countries) plays a significant role in managing crude oil production targets for its member countries, which can impact the supply-demand balance and, consequently, crude oil prices.
Market mechanisms, such as refining costs, exchange rates, and taxes, also influence diesel prices. The process of refining crude oil into diesel incurs costs that vary depending on factors like the type of crude oil and refinery efficiency. Changes in exchange rates, such as between the Indian rupee and the US dollar, can further impact diesel prices, especially in countries that import a significant portion of their crude oil. Additionally, taxes imposed by governments can significantly contribute to the final price consumers pay for diesel fuel.
In summary, fluctuations in crude oil prices have a direct impact on diesel prices due to the interrelated nature of global markets and the various factors influencing crude oil pricing, including supply and demand dynamics, geopolitical events, market mechanisms, and the actions of organizations like OPEC. These factors collectively shape the cost of diesel fuel for consumers.
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$64.25 $82.67
Seasonal fluctuations affect diesel prices
Diesel fuel prices are influenced by a variety of factors, including seasonal fluctuations. While diesel prices have been higher than regular-grade gasoline prices since 2004, breaking historical patterns, seasonal variations continue to impact fuel prices.
Secondly, supply disruptions due to refinery problems or import issues can cause rapid changes in diesel prices. Seasonal variations, such as extreme weather conditions, can impact the supply of diesel fuel. For example, harsh weather may disrupt refinery operations or affect the transportation and delivery of diesel fuel, leading to higher prices.
Additionally, transportation costs are influenced by seasonal fluctuations. Winter months often bring hazardous road conditions, delaying transportation and increasing costs. These higher transportation costs are reflected in the final price that consumers pay for diesel fuel.
Moreover, weather conditions play a significant role in diesel prices. Extreme temperatures, droughts, or excessive rain can impact crop yields, which in turn affects the production of biofuels and the availability of raw materials for diesel fuel production. The type of crop also matters, as some crops are more vulnerable to specific weather conditions, further influencing diesel prices.
Overall, seasonal fluctuations have a notable impact on diesel prices through changes in demand, supply, transportation costs, and weather conditions. These factors interact to determine the final price that consumers pay for diesel fuel.
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Frequently asked questions
Diesel fuel prices have risen due to several factors, including refinery slowdowns, the pandemic, and Russia's invasion of Ukraine.
After Russia invaded Ukraine in February 2022, the United States banned the import of Russian oil and petroleum products, including diesel. This impacted the supply and kept diesel prices high.
Crude oil regularly accounts for around 50% of the end consumer prices of diesel. Therefore, supply restrictions or weak demand outlooks can influence diesel prices at the pump.
Diesel fuel prices have been higher than regular gasoline prices due to higher taxes and production costs associated with the transition to less polluting fuels.
While diesel prices remain high, experts predict that diesel figures will decline in 2025 and continue falling in the following years.
