Mercedes Mullins
The profit margin on diesel fuel has been a topic of recent discussion, with investigations into supermarkets cashing in on substantial profit margins. In 2023, the profit margin on diesel fuel in the UK rose from 6 pence per litre in 2021 to 16 pence per litre, a 166% increase. In the US, the price of diesel fuel includes the costs of crude oil, refinery processing, marketing, distribution, retail station operation, and various taxes. The retail pump price reflects the costs and profits of the refiners, marketers, distributors, and retail station owners, and these costs vary over time and among different regions. While gasoline is more widely available and typically sells for a lower retail price, diesel engines have better fuel efficiency and are often used for large commercial vehicles.
| Characteristics | Values |
|---|---|
| Retail diesel fuel pump price components | Crude oil, refinery processing, marketing and distribution, and taxes |
| Federal excise tax for on-highway diesel fuel | 24.30 cents per gallon |
| Federal Leaking Underground Storage Tank fee | 0.1 cents per gallon |
| Average total state taxes and fees for on-highway diesel fuel (as of January 1, 2024) | 34.74 cents per gallon |
| Diesel fuel delivery cost | 5 cents per gallon |
| Profit margin on diesel fuel (as of 2023) | 16 pence per litre |
| Average profit for fuel delivery personnel | 12-15 cents per gallon |
| Diesel fuel price in December 2024 | 3.49 USD per gallon |
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What You'll Learn
Diesel fuel profit margins for supermarkets
The profit margin on diesel fuel for supermarkets has been a topic of recent discussion and scrutiny. In the UK, supermarkets have been reported to have doubled their profit margins on diesel fuel since the Ukraine war began. This has resulted in significant increases in diesel prices, causing concern among drivers and businesses.
According to experts, the profit margin on diesel fuel for supermarkets was about 16 pence per litre in 2023, compared to 6 pence in 2021, representing a 166% increase. This widening gap between the retail and wholesale prices indicates that supermarkets are retaining a larger portion of the sales price as profit.
The specific mechanisms of diesel fuel pricing and the distribution of profits among different entities in the supply chain are complex. Generally, the price paid by service stations includes the rack price, jobber markup, and transportation costs. The jobber, who purchases fuel at the rack price, makes a profit of around 10 pence per litre, while the service station keeps about 8 pence as profit. However, these numbers may vary, and other costs, such as hazardous material handling and taxes, also influence the final price.
While supermarkets have historically been among the cheapest fuel suppliers, the recent increases in their profit margins have drawn the attention of regulatory bodies. The UK's Competition and Markets Authority (CMA) has been investigating supermarkets' profit margins on diesel fuel, acknowledging that the additional margins are not solely due to factors like the Ukraine war. The CMA has proposed initiatives such as a "fuel finder scheme" and the establishment of a monitoring body to enhance price transparency, promote fair pricing practices, and restore competition among fuel retailers.
The impact of supermarkets targeting higher profit margins during periods of volatility, such as the Ukraine war, can have significant financial consequences for drivers and businesses. It underscores the delicate balance between retailers' financial strategies and the affordability of essential goods for consumers.
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How fuel delivery drivers make a profit
The profit made by fuel delivery drivers depends on several factors, including the price of fuel, the amount of fuel delivered, the cost of operating the delivery truck, and the fees charged by the delivery company.
Fuel delivery drivers typically earn a base salary, with the median salary for a fuel delivery driver in the United States being $50,114 per year. The top-paying industry for fuel delivery drivers is Transportation & Logistics, with a median total pay of $59,763 per year. However, the salary range can vary widely, from a low of $35,500 to a high of $70,745 per year.
In addition to their salary, fuel delivery drivers can also make a profit through markups on the fuel they deliver. For example, a jobber may buy fuel at a rack price of $3.00 per gallon and mark it up by $.10, resulting in a selling price of $3.12 per gallon. The jobber then makes a profit of $.10 per gallon. Similarly, a service station may buy fuel from the jobber at $3.12 per gallon and sell it for $3.20 per gallon, making a profit of $.08 per gallon.
The amount of fuel delivered also plays a role in the profit margin. End users who purchase fuel in smaller quantities, such as 500-600 gallons per week, may pay a higher price per gallon compared to larger users who can take full tanker loads. For instance, a farm or other small user may pay $3.20 per gallon, resulting in a profit of $.20 per gallon for the jobber and the bulk plant. However, if the same small user could take tanker loads and buy at net gallons, they might be able to negotiate a better price and reduce their costs.
Fuel delivery companies may also charge additional fees, such as transportation costs, which can impact the overall profit. For example, it costs a company at least $80.00 each time a truck stops to deliver fuel. These costs, along with the volatile nature of fuel prices, can affect the profit margin for fuel delivery drivers and their companies.
Overall, the profit made by fuel delivery drivers can vary depending on various factors, including fuel prices, delivery volumes, operating costs, and company fees. While some fuel delivery drivers may make a substantial profit, especially during periods of high fuel prices, it is important to consider the risks and costs associated with the business, such as competition, handling hazardous materials, and the mega financial risk to big players.
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The cost of producing and delivering diesel fuel
Crude oil costs vary depending on the location of production, ranging from approximately $20 per barrel in Saudi Arabia to $90 per barrel for some deep-water wells. The refining process, which converts crude oil into diesel, also incurs costs that depend on the final product's specifications and any additives used. For example, the cost to refine gasoline ranges from $0.40 to $0.70 per gallon, with summer gasoline requiring a higher cost due to lower vaporization rates to reduce air pollution.
Distribution costs for diesel fuel include the transportation of the finished product from refineries to central distribution points and then to retail outlets. Diesel, being a heavier product, generally incurs higher transportation and equipment costs compared to gasoline. Marketing and distribution costs for diesel fuel are relatively stable, but they still contribute to the final selling price.
Taxes also play a significant role in the cost of diesel fuel. Excise taxes, levied at both the national and state levels, are used for road and highway construction and maintenance. Diesel taxes tend to be higher than gasoline taxes because diesel is primarily used by heavier trucks, which cause more wear and tear on highways. Federal, state, and local taxes are included in the retail price of diesel fuel, impacting the final price consumers pay at the pump.
The profit margin for diesel fuel can vary for different entities in the supply chain. For example, a jobber, who buys at rack price and sells to retail stations, may make a higher profit per gallon than the retail station itself. The profit for fuel delivery services can fluctuate with fuel price changes. When fuel prices increase, their stored fuel becomes more valuable, resulting in higher profits. However, when fuel prices decrease, they may incur losses due to the reduced value of their fuel inventory. Overall, the cost of producing and delivering diesel fuel involves various factors, and the profit distribution varies across the different stakeholders in the industry.
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The price of diesel fuel in the US
The US diesel fuel retail price has fluctuated over time, with monthly variations. For instance, in December 2024, the average monthly diesel price dipped to a 24-month low of approximately $3.49 per gallon. This decrease in diesel prices during the latter part of 2024 can be attributed to lower crude oil prices.
The profit associated with diesel fuel sales involves various entities in the supply chain, including jobbers, transportation, bulk plants, and retail stations. The specific profit margin for each entity can vary, but generally, the jobber tends to make a higher profit per gallon compared to the service station. For example, in a scenario where the rack price is $3.00, the jobber markup is $0.10, transportation costs are $0.02, and the station pays a total of $3.12. The station then sells the fuel for $3.20, making a profit of $0.08 per gallon, while the jobber's profit is $0.10.
The fuel delivery business is complex due to various factors, including the handling of hazardous materials, financial risks, allocation, and credit allowances. The profit for fuel delivery personnel can vary depending on fuel price fluctuations. When fuel prices rise, their stored fuel becomes more valuable, resulting in higher profits. However, when prices decline, they may face losses. On average, fuel delivery individuals aim for a breakeven between the highs and lows, with profits ranging from 12 to 15 cents per gallon.
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The impact of the war in Ukraine on diesel fuel prices
The Russian invasion of Ukraine in February 2022 caused oil prices to skyrocket to over $110 per barrel. This had a significant impact on diesel fuel prices, which are connected to the price of crude oil. The price of diesel fuel rose sharply and peaked in June 2022, with a Producer Price Index (PPI) about 109% higher than in June 2021. This increase was due to several factors, including the scarcity of diesel fuel worldwide and the decision by the US and other countries to stop purchasing energy exports from Russia.
The war in Ukraine has contributed to a period of high energy prices that are being passed on to consumers at the pump, in their gas, heating, and electricity bills. In many countries, taxes on diesel and gasoline represent more than half of the price paid by consumers. As a result, consumers are facing increased costs for goods and services, fuelling inflation expectations.
To ease the burden on consumers, some governments may introduce measures such as decreasing or suspending federal and state taxes on diesel and gasoline. However, these actions may only have a short-lived and limited impact on prices. In the longer term, increasing domestic and international production could help ease price pressure.
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Frequently asked questions
The profit made on diesel fuel is influenced by the costs of crude oil, refinery processing, marketing and distribution, and retail station operation. The retail pump price reflects the costs and profits of the refiners, marketers, distributors, and retail station owners.
The profit margin on diesel fuel has increased significantly in recent years. In the UK, the profit margin rose from 6p per litre in 2021 to 16p per litre in 2023, a 166% increase. This has been attributed to factors such as the war in Ukraine and supermarkets maintaining higher price margins.
The federal excise tax for on-highway diesel fuel in the United States is 24.3 cents per gallon, which is 6 cents higher than the tax on regular-grade gasoline.
Generally, gasoline is more widely available and sells for a lower retail price than diesel fuel. However, diesel engines have better fuel economy, so they are commonly used for large commercial vehicles.
The profit per gallon may decrease for larger fuel deliveries due to factors such as competition, handling costs, and allocation. However, larger deliveries can also result in higher total profits due to the increased volume.
