Ameer Randolph
The retail price of diesel fuel is influenced by various factors, including the costs of crude oil, refinery processing, marketing, distribution, and retail station operations. The price at the pump includes federal, state, and local taxes, such as the federal excise tax and state taxes, which vary across regions. International demand for distillate fuel, seasonal variations in heating oil demand, and local market conditions also impact diesel fuel prices. Retail outlets owned by refiners or independent businesses further contribute to price fluctuations. Understanding these factors provides insight into the complex dynamics that determine the daily prices of diesel fuel.
| Characteristics | Values |
|---|---|
| Factors determining the price | The cost of crude oil, refinery processing, marketing and distribution, and retail station operation |
| Components of the retail price | Costs, profits (or losses), and taxes |
| Federal excise tax | 24.30 cents per gallon (6 cents higher than regular-grade gasoline) |
| Federal Leaking Underground Storage Tank fee | 0.1 cents per gallon |
| Average total state taxes and fees (as of Jan 1, 2024) | 34.74 cents per gallon |
| State with the highest total state taxes (as of Jan 1, 2024) | California (96.32 cents per gallon) |
| Fluctuations | Seasonal changes, demand, local market conditions, location of the fueling station, and distance from the source of supply |
| Wholesale prices | OPIS (Oil Price Information Service) provides daily wholesale rack pricing for gasoline and diesel blends |
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What You'll Learn
Crude oil demand and supply
The retail price of diesel fuel is influenced by various factors, including the cost of crude oil, refinery processing, marketing and distribution, and retail station operation. The price at the pump includes taxes such as the federal excise tax, state taxes, local taxes, and municipal government taxes. The specific tax rates vary over time and across regions.
On the supply side, OPEC+ (Organization of the Petroleum Exporting Countries and allies) plays a crucial role in crude oil production and supply. OPEC+ members coordinate production targets and output levels, which can impact the global supply of crude oil. In July 2025, OPEC+ announced its third consecutive planned monthly crude oil production increase, aiming to support falling prices. However, there is uncertainty regarding the coordination of future production targets among OPEC+ members due to falling oil prices and increasing oil supply from external sources.
Non-OPEC+ production is also significant, with the United States forecast to be the largest source of supply growth in 2025, followed by Canada, Brazil, and Guyana. Wildfires near Canada's major oil sands facilities, the Russia-Ukraine conflict, and potential force majeure on oil exports in Libya are additional factors that could disrupt the supply of crude oil.
The interaction between crude oil demand and supply dynamics influences diesel fuel prices. When global oil demand growth slows and inventories increase, oil prices tend to decline. Conversely, when supply is disrupted or demand increases faster than expected, oil prices can rise. The market outlook for crude oil remains uncertain, with various geopolitical factors and production decisions potentially affecting supply and demand.
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Local market conditions
Regional demand and supply dynamics also play a crucial role in determining diesel fuel prices. A surge in demand for distillate heating oil during winters can drive up diesel prices above gasoline prices. Additionally, the transition to ultra-low-sulfur diesel (ULSD) fuel in the United States impacted diesel fuel production and distribution costs. The federal excise tax on diesel fuel, currently 6 cents higher per gallon than regular-grade gasoline, further contributes to price variations.
Local taxes and supply issues can also cause price discrepancies between states. For example, diesel fuel prices on the West Coast, particularly in California, tend to be higher due to these factors. As of January 1, 2024, the total state taxes on retail, on-highway diesel fuel in California reached 96.32 cents per gallon, significantly higher than the national average of 34.74 cents per gallon for all 50 states.
Moreover, the interplay between regional supply and transportation capabilities can influence diesel fuel prices. If the diesel fuel transportation system cannot efficiently transfer supplies between regions, prices may remain comparatively high. This situation can be exacerbated by unexpected declines in petroleum supply due to refinery issues or import delays, leading to rapid decreases in diesel inventories. In such cases, wholesalers and marketers may bid higher for available supplies, further driving up prices.
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Federal, state, and local taxes
The retail pump price of diesel fuel includes federal, state, and local taxes. The federal government levies an excise tax on diesel fuel, which is currently 24.3–24.4 cents per gallon—6 cents higher than the federal excise tax on regular-grade gasoline. The federal Leaking Underground Storage Tank fee is also applied at 0.1 cents per gallon. These taxes contribute to funds such as the Highway Trust Fund and the maintenance of roads and highways.
As of January 1, 2024, the average total of state taxes and fees for on-highway diesel fuel was 34.74 cents per gallon. State fuel taxes vary and have undergone many revisions since their creation. For instance, the first US state to tax fuel was Oregon, which introduced a 1 cent per gallon tax in 1919. By 1939, the average state fuel tax had risen to 3.8 cents per gallon. Today, some states charge sales tax on diesel fuel, calculated as a percentage of the fuel purchase, which varies based on the price of fuel. Local and municipal government taxes also contribute to the final selling price of diesel fuel. The American Petroleum Institute calculates the average tax for the entire state by using a weighted average of local taxes by municipality population.
Federal fuel taxes raised $36.4 billion in Fiscal Year 2016, with $10.3 billion coming from diesel and special motor fuel taxes. The federal tax was last raised in 1993 and is not indexed to inflation, which has since increased by 68–113 percent as of 2017. Due to this discrepancy, some policy advisors advocate for an increased tax to fund and sustain the country's transportation infrastructure.
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International demand for distillate fuel
The price of diesel fuel is influenced by a variety of factors, including the cost of crude oil, refinery processing, marketing, distribution, and retail station operations. Local market conditions, such as the location of the fueling station, can also impact the retail price of diesel fuel. One factor that influences diesel prices is the worldwide demand for diesel and other distillate fuel oils.
During the COVID-19 pandemic, demand for jet fuel decreased significantly due to international travel restrictions, concerns about rising COVID-19 cases, and reduced business travel. In contrast, the demand for distillate fuel remained relatively stable, as it is driven by the distribution of essential goods such as food and medical supplies, as well as increased home deliveries.
From the end of 2020 to April 2021, distillate product supply in the US generally matched or exceeded the levels from 2019. This trend is supported by trucking and rail demand, with the American Trucking Association reporting an increase in the truck tonnage index.
As of June 2021, the four-week average demand for distillate fuel in the US was at 98% of its 2019 level for the same period. This recovery outpaced that of gasoline and jet fuel, which were at 94% and 74% of their respective 2019 levels. The combination of increasing travel and economic activity in the US has contributed to the growing demand for distillate fuel.
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Seasonal demand
The retail price of diesel fuel is influenced by a variety of factors, including seasonal demand. The demand for diesel fuel typically follows economic trends, with international demand for distillate fuel impacting prices in the United States.
The transition to ultra-low-sulfur diesel (ULSD) fuel, which began in September 2004, has also impacted diesel fuel prices. The new regulations mandate a reduction in the sulfur content of on-highway diesel fuel, leading to increased production and distribution costs. Refiners are incurring higher operating and capital costs to adapt to the new demand pattern for low-sulfur diesel fuel, resulting in a price premium for consumers.
Moreover, the cost of crude oil is a significant factor in diesel fuel pricing. From 2004 through 2023, the cost of crude oil accounted for approximately 50% of the monthly average U.S. retail on-highway diesel fuel prices. The worldwide demand for and supply of crude oil influences its price, which in turn affects diesel fuel prices.
Regional and local factors also play a role in diesel fuel pricing. For example, the West Coast liquid fuels market, particularly California, faces higher prices due to taxes and supply issues. California's isolation from other U.S. markets, which are interconnected by pipelines and river systems, results in higher transportation costs when a refinery outage occurs.
In summary, the retail price of diesel fuel is influenced by various factors, including seasonal demand, international and regional supply and demand, crude oil prices, and local market conditions. These factors collectively contribute to the fluctuations in diesel fuel prices, particularly during seasons with higher demand.
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Frequently asked questions
There is no single entity that sets the daily prices of diesel fuel. Instead, the price is influenced by various factors and market conditions that are constantly fluctuating.
The retail price of diesel fuel reflects the costs and profits (or losses) incurred during production and delivery. These costs include crude oil, refinery processing, marketing, distribution, and retail station operation. The price is also affected by federal, state, and local taxes, as well as the location and ownership of retail outlets.
As diesel fuel is a major transportation fuel, its demand often follows economic trends. International demand for distillate fuel, such as heating oil, can affect US diesel fuel prices. Changes in demand for one type of distillate fuel can influence the price of others.
OPIS (Oil Price Information Service) provides critical industry information, including real-time market data and news alerts on gasoline, diesel, and oil markets. Nearly every gallon of wholesale diesel fuel sold in the US transacts on an OPIS-published price at some point.
Local market conditions, such as the location of the fueling station and regional supply sources, can impact diesel fuel prices. For example, areas farther from the Gulf Coast, a major source of US diesel fuel production, tend to have higher prices due to increased transportation costs.
