Ameer Randolph
Diesel fuel prices have been consistently higher than gasoline prices in recent years. In 2022, the average cost of a gallon of diesel fuel was $4.99, compared to $3.498 for regular gasoline. This price discrepancy can be attributed to various factors, including higher taxes on diesel fuel, refinery closures, and increased demand from commercial vehicles and the shipping industry. While diesel engines offer better fuel economy, the higher cost of diesel fuel can significantly impact transportation and logistics costs, particularly for businesses that rely heavily on diesel-powered vehicles.
| Characteristics | Values |
|---|---|
| Date | 30 July 2025 |
| Average gas price in the U.S. | $3.140 per gallon |
| Average gas price in May 2025 | $3.185 per gallon |
| Average gas price in July 2024 | $3.498 per gallon |
| Average cost of a gallon of diesel fuel in 2023 | $4.21 |
| Average cost of a gallon of diesel fuel in 2022 | $4.99 |
| Average cost of a gallon of diesel fuel in 2024 (as of May 13) | $3.61 |
| Average cost of a gallon of diesel fuel in 2024 (as of Jan) | $3.92 |
| Average cost of a gallon of diesel fuel in 2024 (first four months) | $3.96 |
| Tax on diesel fuel per gallon | 24.3 cents |
| Tax on regular gasoline per gallon | 18.3 cents |
| Most expensive U.S. state (for gas) | ~$2 more per gallon than the least expensive state |
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What You'll Learn
Diesel fuel prices are influenced by demand and supply
Diesel fuel prices are influenced by a multitude of factors, with demand and supply being key determinants. Demand for diesel fuel is influenced by seasonal variations, economic trends, and its use for heating and transportation. During the summer months, demand for diesel tends to increase as people travel more. Conversely, during economic downturns, demand may decrease as individuals curtail their spending. The demand for heating oil, which is closely related to diesel, also impacts diesel fuel prices. A warm winter can lead to lower demand for heating oil, causing diesel prices to decrease as inventories rise.
The cost of crude oil is a significant factor influencing diesel fuel prices, accounting for about 50% of the monthly average U.S. retail on-highway diesel fuel prices from 2004 to 2023. Global demand and supply of crude oil determine its price, with economic growth and political stability influencing demand. For instance, political tensions in the Middle East often lead to spikes in crude oil prices. The cost of refining crude oil is another critical factor, as changes in refining costs can cause fluctuations in diesel fuel prices.
Supply-side factors also play a crucial role in diesel fuel pricing. Unexpected declines in petroleum supply due to refinery problems or import delays can lead to rapid decreases in diesel inventories. When stocks are low, wholesalers and marketers may bid higher for available supplies, driving up prices. Distribution is a critical aspect of diesel fuel pricing, as the transportation system's ability to move supplies between regions affects pricing. Local market conditions, including the location and ownership of retail outlets, also impact diesel fuel prices.
Geopolitical instability, government policies, taxes, and subsidies can further influence diesel fuel prices. Taxes imposed on diesel fuel by federal and state governments contribute to higher prices, and these taxes also impact the prices of goods and services that rely on diesel, such as transportation costs. In some countries, diesel fuel is heavily taxed to discourage its use, while others provide subsidies to promote economic growth.
In summary, diesel fuel prices are influenced by a complex interplay of demand and supply factors, including seasonal variations, economic trends, crude oil prices, refining costs, supply disruptions, distribution networks, local market conditions, geopolitical issues, and government policies. These factors collectively contribute to the fluctuations in diesel fuel prices observed in the market.
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Refinery slowdowns and closures impact supply
Refinery slowdowns and closures have a significant impact on fuel supply and prices. The US refining industry is undergoing a significant transformation, with several refineries slated for closure or conversion. This reduction in refining capacity is occurring alongside growing demand for gasoline, diesel, and jet fuel, creating a tightening of supply that is expected to affect fuel markets domestically and internationally.
For instance, the closure of LyondellBasell's Houston refinery, a major industry backbone, will likely constrain supply. Prior to its shutdown, the refinery produced approximately 140,000 barrels per day (bpd) of gasoline and 100,000 bpd of diesel, a significant portion of the US's combined export total. The shutdown of such a large refinery will likely cause temporary disruptions in fuel supply, particularly in regions dependent on exports from the Gulf Coast, a key hub for US fuel exports.
Similarly, refinery closures on the West Coast, such as the end of operations at Phillips 66's Rodeo refinery and Marathon's Martinez refinery, have reduced refining capacity in California to just 2% of the nation's total. However, these refineries account for 17% of California's refinery capacity and 11% of the West Coast's capacity, so their closure is expected to have a disproportionate impact on the region. The reduced logistical connectivity of the West Coast to other refinery hubs means that the supply shortfall cannot be easily filled by other refineries in the country, leading to potential increases in fuel price volatility.
The combination of refinery closures and rising consumption is expected to reduce US petroleum inventories in 2026. This will particularly affect jet fuel, which will face tight supply and demand conditions. US consumption of jet fuel is projected to rise while refinery production decreases, leading to low inventory levels. These factors will contribute to increased prices and heightened volatility in the fuel market.
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Diesel is taxed higher than gasoline
Diesel fuel is often more expensive than gasoline, and this can be attributed in part to the higher taxes levied on diesel fuel. While gasoline taxes have remained unchanged since 1993, diesel fuel taxes are often several cents higher per gallon. For example, federal taxes in the US include excise taxes of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel.
This disparity in taxation rates varies across different states. Twenty-six states and the District of Columbia tax gasoline and diesel at similar rates as of 2019. However, some states levy higher taxes on diesel fuel to account for the increased wear and tear on roads caused by heavy trucks, ensuring these vehicles contribute more towards infrastructure maintenance. Notably, Kentucky addresses the inequity of lower diesel taxes by imposing a surtax on commercial carriers.
On the other hand, some states, such as Colorado, Delaware, Florida, Kentucky, Montana, Nevada, and Tennessee, tax diesel fuel at a significantly lower rate than gasoline. This variation in tax rates across states influences the overall price disparity between gasoline and diesel fuel.
The revenue generated from fuel taxes contributes significantly to federal and state finances. For instance, federal fuel taxes in the US raised $36.4 billion in Fiscal Year 2016, with $26.1 billion from gasoline taxes and $10.3 billion from diesel and special motor fuel taxes. While some critics argue that these revenues are diverted to unrelated government programs, others advocate for increased fuel taxes to fund transportation infrastructure development and sustainability.
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Diesel engines have better fuel economy
Diesel engines have several advantages over gasoline engines, including better fuel economy and lower maintenance costs.
Firstly, diesel engines are more fuel-efficient than similar-sized gasoline engines. Diesel fuel contains approximately 10% to 15% more energy than gasoline, allowing diesel vehicles to travel about 20% to 35% farther on a gallon of fuel. A study by The Motley Fool found that diesel engines were 29% more efficient on the highway and 24% more efficient in the city. This translates to lower fuel costs per mile driven, even if diesel fuel has a higher price per gallon.
Secondly, diesel engines have fewer components than gasoline engines, resulting in fewer potential malfunctions and reduced maintenance requirements. For example, diesel engines do not have spark plugs, minimizing the chances of electrical failures. This simplicity also makes diesel engines more durable and long-lasting, contributing to their overall economic advantage over the vehicle's lifetime.
While diesel engines were once known for their noisy operation, modern advancements have addressed this issue. Today's diesel engines are quieter, smoother, and capable of meeting the same emissions standards as gasoline vehicles. However, it's important to note that diesel engines may not provide financial benefits for drivers who travel less than 10,000 miles per year or primarily drive in the city, as the higher upfront cost of diesel vehicles takes many years to offset through fuel savings.
In summary, diesel engines offer improved fuel economy and lower maintenance expenses compared to gasoline engines, making them a cost-effective choice for certain driving profiles and vehicle types, especially in regions without well-established natural gas or hydrogen infrastructure.
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Diesel prices are predicted to decline
Firstly, the EIA anticipates lower demand growth for diesel fuel. While global demand for distillate fuel oil, which is primarily used for diesel road fuel, is expected to remain strong, the EIA predicts that U.S. demand for distillate will remain below 2022 levels through 2024. This is due to high prices driving down consumption in the second half of 2022, and the expectation that consumption will continue to decrease or remain stable in the following years.
Secondly, increased refinery capacity and production are expected to contribute to rising supplies of diesel fuel internationally. New refineries in the Middle East, particularly in Kuwait, have increased the global supply of diesel, easing international price pressure. Additionally, the additional refinery capacity that came online in late 2022 and expected expansions in 2023 will further boost diesel fuel production.
The combination of lower demand and increased supply is forecasted to result in declining diesel prices. The EIA predicts that on-highway diesel prices in the U.S. will decrease to an average of $4.23 per gallon in 2023 and further down to $3.70 per gallon in 2024. These price decreases are expected to occur despite the expectation of modest growth in U.S. diesel consumption in 2024, supported by continuing economic growth.
However, it is important to note that the forecast for diesel prices is subject to uncertainties. Factors such as crude oil price fluctuations, unplanned refinery shutdowns, disruptions to international trade, and logistical bottlenecks could impact diesel prices and cause them to deviate from the predicted decline. Nonetheless, the overall outlook suggests that diesel prices are likely to move downwards in the coming years.
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Frequently asked questions
Diesel is more expensive than gasoline due to regulations, taxes, and supply and demand factors. Diesel fuel is taxed at a higher rate than regular gasoline by the US government. Diesel fuel is taxed at 24.3 cents per gallon, while regular gasoline is taxed at 18.3 cents per gallon.
During the pandemic, people drove less, so refineries produced less gas and diesel fuel. However, freight and delivery trucks, which run on diesel, were still in high demand due to the increase in online shopping. This lower supply and higher demand caused diesel prices to increase.
The war in Ukraine has impacted the supply of diesel fuel. Sanctions against Russia have kept diesel reserves lower than average as the US typically imports petroleum products from Russia for fuel production. Additionally, US refinery closures and slowdowns have further reduced the supply of diesel fuel.
One reason may be that diesel fuel is used for large commercial vehicles, such as freight and delivery trucks, which contribute more to carbon emissions than regular passenger vehicles.
Yes, experts predict that diesel prices will decline in 2025. This is expected to be driven by an increase in the supply of diesel fuel due to greater capacity at US refineries.
