Mercedes Mullins
Diesel fuel has been a hot topic for vehicle owners for many years, with prices often being higher than unleaded fuel. In 2022, diesel prices in Australia were 51 cents per litre more expensive than unleaded, and in the US, diesel was over a dollar more per gallon than unleaded. So, what's behind the price difference? Well, it's a combination of factors, including production costs, taxes, and demand. Diesel fuel production is less refined, so it should be cheaper to produce, but taxes and high demand, especially in Europe, China, India, and the US, have pushed prices up. With prices fluctuating, drivers are seeking ways to save money, including fuel checker apps and fuel cards.
Characteristics of Diesel Fuel Being Cheaper than Unleaded Fuel
| Characteristics | Values |
|---|---|
| Diesel fuel price | $3.84/gallon |
| Unleaded fuel price | $2.66/gallon |
| Difference in price | $1.18/gallon |
| Date of price record | 23 October 2022 |
| Location | Australia |
| Reason for high diesel price | High demand for diesel |
| Reason for high demand | Used for power generation and heating oil |
| Comparison with previous years | Diesel prices have been higher than unleaded fuel prices since 2004 |
| Exception | Unleaded fuel is sometimes more expensive than diesel fuel |
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What You'll Learn
Diesel prices are influenced by demand for heating oil in winter
Diesel fuel prices are influenced by a multitude of factors, including demand, supply, and seasonal changes. One significant factor contributing to the price fluctuation of diesel is the demand for heating oil during the winter months.
In regions of the Northern Hemisphere, diesel is commonly used as heating oil for residential and commercial spaces. As temperatures drop, the demand for heating oil surges, leading to increased consumption of diesel fuel. This spike in demand for heating oil can exert pressure on the diesel fuel market, as both products are derived from the same crude oil and often compete for refinery capacity. Consequently, the increased demand for heating oil during winter can drive up diesel prices.
The correlation between heating oil demand and diesel prices is evident in the seasonal variation in prices. During winter, when heating oil demand is higher, diesel prices tend to increase. Conversely, during milder winters or in seasons with lower heating oil demand, diesel prices may ease. This dynamic illustrates the direct influence of heating oil demand on diesel pricing.
The production of heating oil and diesel fuel is closely linked, as they are refined from the same crude oil source. When refineries prioritize meeting the heightened demand for heating oil during winter, it can result in reduced diesel availability for vehicles. This supply-and-demand imbalance further contributes to the upward pressure on diesel prices.
Additionally, winterized diesel fuel formulations can impact fuel economy, reducing efficiency by a small percentage. This reduction in fuel economy affects the trucking industry, which consumes billions of gallons of diesel fuel annually. The combined effect of increased demand for heating oil and the need for winterized diesel fuel contributes to the overall rise in diesel prices during the colder months.
In summary, the demand for heating oil in winter plays a significant role in influencing diesel prices. The interplay between heating oil demand, refinery capacity, and supply-and-demand dynamics contributes to the seasonal fluctuations in diesel fuel prices. Understanding these factors is essential for consumers, businesses, and industry experts to make informed decisions regarding fuel consumption and cost management during the winter season.
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Diesel is denser and less reactive, making it easier to refine
Diesel is denser and less reactive than gasoline, which makes it easier to refine from crude oil. Crude oil contains hundreds of different types of hydrocarbons all mixed together, and these need to be separated through refining. Diesel is made of components with longer molecular chains, which contain more energy per litre. This means diesel has a higher energy density, making it more efficient than gasoline.
Diesel has the consistency of light oil, which means it can continuously lubricate the cylinder as it moves around. Its viscosity decreases with temperature, becoming less dense at high temperatures. This makes it easier to burn, reducing the overall wear and tear of the engine. In contrast, gasoline is more of a solvent and is more acidic, causing corrosion and increasing wear and tear.
Diesel engines are favoured in big machines as they can produce more energy at lower RPMs and provide more torque. They are also more fuel-efficient and durable, requiring less maintenance. They are harder to break and can last 20-30 years before needing major repairs.
Diesel engines are also safer as they are less flammable than gasoline. However, diesel spills on the road can pose a slip hazard to vehicles as they evaporate slowly, leaving a greasy slick that reduces tyre grip and traction. This can be dangerous for two-wheeled vehicles, such as motorcycles and bicycles.
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Ultra-Low Sulfur Diesel requires more refining, increasing costs
Diesel fuel prices have been higher than those of regular-grade gasoline almost continuously since September 2004. This is a notable shift from the historical pattern, where diesel fuel prices were typically lower than gasoline prices, except during cold winters when heating oil demand was high. Several factors contribute to diesel fuel being more expensive than unleaded fuel. One significant reason is the transition to less polluting and lower-sulfur diesel fuels, specifically the introduction of Ultra-Low Sulfur Diesel (ULSD).
Ultra-Low Sulfur Diesel (ULSD) is a cleaner-burning diesel fuel that has been mandated in various countries and regions to reduce harmful emissions. ULSD contains a maximum of 15 parts per million (ppm) of sulfur, which is 97% less than low-sulfur diesel. The refining process to achieve this low sulfur content is more extensive and has increased diesel manufacturing prices. The removal of sulfur also reduces the aromatic content and density of the fuel, resulting in a minor decrease in energy content by about 1%.
The transition to ULSD has been a gradual process, with different timelines in different regions. In the United States, the Environmental Protection Agency (EPA) has played a pivotal role in introducing ULSD to improve air quality. Since December 1, 2010, all highway diesel fuel nationwide has been required to be ULSD, and pumps dispensing ULSD must be labeled accordingly. Prior to that, the EPA mandated the use of ULSD in model year 2007 and newer highway diesel fuel engines equipped with advanced emission control systems.
In the European Union, the "Euro IV" standard was implemented in 2005, specifying a maximum of 50 ppm of sulfur in diesel fuel for most highway vehicles. Ultra-low-sulfur diesel, with a maximum of 10 ppm of sulfur, was required to be available from 2005 and became widely available by 2008. The Euro V fuel standard, which came into effect in 2009, further reduced the maximum sulfur content to 10 ppm for most diesel fuel applications.
The increased refining requirements for ULSD have had a noticeable impact on diesel fuel prices. The additional costs associated with producing ULSD have been passed on to consumers, contributing to the higher prices seen at the pump. This transition to ULSD has also been influenced by the desire to increase the availability of diesel-fueled passenger cars in the United States, bringing them more in line with European preferences, where diesel-engine automobiles have been more popular.
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Diesel excise tax is higher than gasoline in the US
The price of diesel fuel has been higher than regular-grade gasoline in the US almost continuously since 2004. This is a break from the historical pattern, where diesel prices were usually lower than gasoline.
There are several reasons for the higher cost of diesel. Firstly, the transition to less polluting, lower-sulfur diesel fuels in the US has affected diesel fuel production and distribution costs. Secondly, the demand for diesel fuel has been relatively high, especially in Europe, China, India, and the United States. Finally, and most relevant to the question, the federal excise tax for on-highway diesel fuel is higher than that for gasoline.
The federal excise tax on diesel fuel in the US is 24.3 or 24.4 cents per gallon, according to different sources. In comparison, the tax on gasoline is 18.4 cents per gallon, a difference of 6 cents. This disparity in taxation contributes to the higher overall price of diesel fuel compared to gasoline.
It is worth noting that while the federal government hasn't raised fuel or diesel taxes since 1993, state and local taxes and fees further increase the overall tax on diesel and gasoline. As of April 2019, these taxes and fees added an average of 35.89 cents to diesel and 34.24 cents to gasoline.
The higher excise tax on diesel fuel in the US is a contributing factor to the overall higher price of diesel compared to gasoline. However, it is important to consider other factors such as production costs, demand, and seasonal variations that also influence the price difference between these fuels.
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Supply and demand for diesel in Australia
In Australia, diesel is more expensive than unleaded petrol. In 2022, diesel was around 51 cents per litre more expensive than unleaded. The price discrepancy is unusual, as the two fuels typically trade at roughly equal prices.
Demand for diesel in Australia is high. Diesel is Australia's most important and versatile fuel. It is needed for emergency services, the transport of essential goods, and as a backup fuel for electricity generation for critical services like hospitals, water and sanitation, and electricity generation in remote communities. Diesel is also used for power generation in gas turbines, and with Europe moving away from Russian pipeline gas, diesel is now cheaper on an equal energy basis.
Australia relies on liquid fuels for more than half of its final energy demand. While the use of alternative fuels and new vehicle technology is increasing, traditional liquid fuels like diesel are expected to remain important in Australia's energy mix in the coming years. To ensure fuel security, the Australian government is implementing measures such as establishing a domestic fuel reserve, maintaining sovereign refining capability, and building additional storage capacity through the Boosting Australia's Diesel Storage Program.
Australia's diesel imports are expected to rise due to a decrease in domestic production and an increase in fuel demand as the country recovers economically from the COVID-19 pandemic. In 2023, diesel imports are projected to increase by about 2% from 2022, with consumption rising to about 600,000 barrels per day. This presents an opportunity for suppliers in Singapore and South Korea, which supply nearly half of Australia's gasoil imports and the majority of its gasoline purchases.
Despite the higher cost of diesel, it offers better fuel efficiency than petrol, delivering more kilometres per litre. However, diesel may not be as readily available in rural areas of Australia, and diesel engine parts can be harder to find in remote places.
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Frequently asked questions
Diesel fuel prices are influenced by factors such as higher demand, particularly in Europe, China, India, and the United States, as well as the transition to less polluting, lower-sulfur diesel fuels, which has increased production costs. Additionally, taxes, such as the federal excise tax, are generally higher for diesel fuel.
No, diesel fuel was not always costlier than unleaded fuel. Until 2004, gasoline was more expensive per gallon than diesel. However, since then, diesel prices have consistently been higher than unleaded fuel prices.
Yes, there are a few strategies to consider. Fuel checker apps can help you find the most affordable prices in your area. Additionally, investing in a fuel card can provide significant discounts and streamline fuel administration for businesses.
