Why diesel fuel cost more than gas

[Tin Diesel]

There's been a couple of interesting questions in different threads about the price of diesel fuel - and why its now higher than gasoline. People ask the question, but don't seem to get an answer.

I went online and found some interesting info. Before posting it, I'll mention that 20 years ago I worked for four years in a major oil-company refinery. During the time I was there, they spent about a half-billion dollars to upgrade their ability to convert less-refined products into (higher-refined) gasoline. I won't go into a long explanation (like cokers, etc. for those of you who know), but I remember telling my New Jersey brother-in-law that he should trade out his heating-oil home heater because that stuff was going to get permanently more expensive. Why? Because refiners were going to feed the gasoline market at the expense of the diesel/heating-oil/jet fuel market.

The following link from the Energy Information Administration tells a lot about why.

Diesel Fuel Prices: What Consumers Should Know

In particular the breakout box, which says:

Why are diesel fuel prices higher than gasoline prices?

Until several years ago, the average price of diesel fuel was usually lower than the average price of gasoline. In some winters when the demand for distillate heating oil was high, the price of diesel fuel rose above the gasoline price. Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the U.S., putting more pressure on the tight global refining capacity. In the U.S., the transition to low-sulfur diesel fuel has affected diesel fuel production and distribution costs. Also, the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline.

There's also interesting info on how diesel fuel is made, if you're interested.
We run a F-250 and it hurts to pay more for diesel than premium. But I don't think that's going to change.

[KeithC]

Diesel and heating fuel costs less to refine than gas. Therfore, those products should be cheaper than gas. Particularly "boutique" blends of gas that are required by some state laws (read Calf.) during summer months to reduce emmisions.

Envirnonmental activists have court challenged every new refinerery prosposed in the last 40 years. The existing refineries have expanded but not enough to meet demand.

I would love to see a law that said...In your state, you have the amount of gas/ diesel /heating oil available, in the your state refines the product. Soooo...simple.

If Flordia does not want off shore drilling or in state refining, they have no gas, and have to pay for inprotation.

If Teddy Kennedy does not want wind farming off Mass....fine..Mass pays for importing energy.

[overlander63]

I know everybody loves lampooning their "favorite" politician, but let's keep the above statement the extent of political commentary.
As far as the price of #2 fuel oil, it is still supply and demand, with some environmental and regulatory conditions thrown in. If demand dips, prices will as well, at least up to a point.

[markdoane]

Originally Posted by KeithC

. . I would love to see a law that said...In your state, you have the amount of gas/ diesel /heating oil available, in the your state refines the product. Soooo...simple. .

That's an interesting proposition.

Maybe we could also apply that law to water.

[garry]

Ever think it might be political??
The trucking industry can pass the higher cost back to the consumer in the way of delivery pricing so you pay for the higher fuel cost at the grocery store and don't complain quite as much as you would at the pump.

Garry

edit bad spelling

[azflycaster]

Diesel fuel requires about 20% more oil to produce then gasoline. The cost of oil is one reason for the higher price at the pumps.

[wingfoot321]

I guess I see a different reason than everyone else.

It is strictly accounting.

If I go to the trouble to find, extract, transport, & refine a barrel of oil, why on earth would I accept a lower dollar recovery for diesel than for gasoline? Particularly if I am going to have new environmental standards.

With the increase of tractor trailer trucks, pickup diesels, and the coming move to European diesel size & type engines in cars, the major oil companies are simply getting their ducks in a row for the future.

The major oil companies have an accounting system which generally has the blessing of the state & federal governments (oil depletion allowances, etc.) and is the only industry that I can think of where as the raw material price increases, their margin does as well.

As the song goes, I'd like to spit some beechnut in that fellows eye.

[Wabbiteer]

Americans have been led down the gasoline path at the convenience of the refineries since there is simply more available per barrel of crude.

If paying for the actual energy content per volume of fuel diesel should be 15% higher. Diesel does take about a fifth more crude to distill from but most of the gases & compounds released have commercial value. The new low sulfur guidelines are a bottleneck in traditional distribution routes. Diesel used in the US is about 35% the volume of gasoline consumed.

I have no clue why it's more expensive.. just the refineries like bulk shipments to ports and industry as a traditional disposal mode, dealing with point-of-sales for a lower volume product is not a method that reduces costs... guess we are lucky it's as cheap as it is.

[DFord79]

One thing that bothers me is...and I know companies need profit....But,,,the price of diesel and gas has given profits to the oil companies in proportions never seen by man in history. Doesnt that mean if the price of fuel was a bit lower their profits would be a bit lower..but still record rates. I mean...Mobil/Exxon made more money last year than GM, Ford. Toyota, Honda, and the rest of the world auto makers have made in the last 10 years. They are not just record profits....they are profits of record several times over. Someone explain to me why they need to make 40 billion profit a year. When just 10 years ago they made 2 or 3 billion a year and they thought that was great.???????

[2airishuman]

in part they are charging now based on energy content, accross all the petrol fuels.

the move to ulsd has and is an ongoing extra cost and will be for 4-7 years.

taxes are higher on diesel.

consumption of gasoline had actually decreased in the usa the last 2-4 years.

while diesel consumption continues to rise.

along with home heating oil, truckers, hauling, rail and boat shipping are all using INCREASED amounts of diesel....

china and russia and africa combined are like adding the equal of californai and texas fuel demands....

every month to their national total loads....

the weekly up/down seen with auto petro relates to travel, holidays and so on....

but trucks, trains, boats barges run high everyday.

for our leaders to influence folks to go buy diesel cars, they are gonna need to tweak the pricing structure of diesel.

and don't forget to buy a LOCKING cap for the tank!!

cheers
2air'

[byamcaravanner]

Originally Posted by DFord79

Mobil/Exxon made more money last year... Someone explain to me why they need to make 40 billion profit a year.

The better question is why did Exxon "need" to pay 28 billion in taxes last year? ...Ironically, some folks in Government say the Oil Companies make obscene profits.

[JimGolden]

So how about we just eliminate the taxes altogether, they be happy with the same net 10-12 billion profit, and prices lower for us. In reference to 2Air's post above, that is basically what I was going to say: To some small extent, we as plain old citizens can curtail our driving somewhat (I still have to get to work even if it's $8 per gallon, but maybe I go to the store once every three weeks instead of once a week...) but the big rigs, trains, etc. have to run. Gotcha. In short, they charge more because they can. I do not buy it that it's just supply and demand. Yes, demand has increased. But not to the point of nearly tripling the price. Maybe, maybe adding 50 cents per gallon, but not adding $2 per gallon. There is more to it. I also believe it utterly foolish to prevent the building of new refineries and drilling our domestic reserves. Until we find that new miracle power source, we're going to need oil. If we started today, and fast tracked it, it'd still take probably a minimum of five years to get a new refinery built (they say it takes ten normally). We are hanging ourselves right now.

[Coastalview]

So has the increase in diesel fuel costs having any of you driving something burning gas instead or change your driving habits while driving a diesel powered vehicle?
Jeff

[Tin Diesel]

I'd like to address the comments on oil company profits. Full disclosure: I used to work for a major oil company, but left 10 years ago. I thought it was a very good company, well run, and nobody I ever worked with intentionally violated the environment or the public... but that's just my opinion. As is the rest of this. (Also, I don't own any stock in any oil companies, much to my chagrin!)

Somebody pointed out that ExxonMobil reported an astonishing $40 BILLION in net income. Wow! Already the nattering nabobs are screaming and the politicians are posturing and environmentalists are, well, being environmentalists. But this prompts me to make two points never made in the media.

First, ExxonMobil is bad. Lets accept this. It must be true, isn’t it? We read it all the time. So lets find those people who own ExxonMobil and make ‘em walk the perp’ walk in front of the media while all the Madame Lafarge’s of the world cheer. Lets find ’em! Do a quick Google search on ‘Exxon Stockholders’ and you’ll be brought to a Yahoo! page that details all major holders of the stock. Better sit down. This may surprise you. Over half the shares (53% to be exact) are owned by mutual funds! Wow, lets throw all those mutual fund managers in jail. No, wait, they don’t set the price of gas, do they? Phooey! OK, then lets throw the mutual fund owners in jail. Uh oh! That’s us! Can’t do that!

OK, how about the bigwigs that run ExxonMobil. We’d LOVE to see their recent CEO Lee Raymond walk the perp walk! On the same Yahoo page, where ownership percentage is rounded to the nearest tenth of a percent, do you know how much of ExxonMobil is owned by insiders? Well, it rounds to zero percent. Not that the top guys don’t own a bunch of stock—they do. But when they’re working for shareholders, its 99.99% somebody else! Want to attack them on their salaries? Mr. Raymond, who ran the largest company in the world, ranked well down the Fortune list of top-paid executives.

Not to beat a dead horse here, but what about the other 47% of the shareholders. Well, that’s actually individuals—ExxonMobil is an American company, so most are presumably Americans. Remember, no single individual owns enough shares to show on the radar screen. Turns out, that 47% is primarily retirees, pensioners and parents putting their kids through college on the rock-solid steady-as-can-be dividend flow from their ExxonMobil investments. Want to put them in jail? Better go look in the mirror—or your neighbor’s mirror, anyway.

So, where is that $40 billion profit going to go? Besides federal taxes and searching for more oil, right back into the pockets of the Americans who own ExxonMobil stock, either directly or through their mutual funds. (Maybe that’s what’s really got the goat of everybody else? They didn't buy that stock, so they don't get some of that money?)

But hey, lets not let the facts get in the way of a good opinion. We can still blame somebody, can’t we? Lets blame all those guys who run the gas stations. Most of them aren’t like us anyway. Now here, I can bring some very personal information you’ll never see anywhere else. I have an inside track on the finances of those little gas station owners because the company I work for is the largest nationwide lender to individuals who own and operate gas stations (only a very small percentage of the stations out there are owned by the corporation whose brand name is on them—think franchisees).

I get to look at the detailed financial statements of a hundreds of gas stations every year. Here’s the single most important thing you need to know. On average over time, in most parts of the country, these guys make 10 to 12 cents per gallon, year after year after year. Sometimes they make more. Right now their profits are up. But last year some were barely making anything on a gallon. Average it out—you guessed it: ten to twelve cents. I know they’re not going to get your sympathy, but don’t forget they are trying to pay for a business whose land, building and equipment is worth, often, more than $1 million, the loan for which we require them to PERSONALLY guarantee. That mortgage payment is $9,000 per month, so they have to sell 90,000 gallons just to make their mortgage payment—never mind operating costs or actually taking money home to pay household bills. That’s why my company won’t even lend them money unless they also have a C-store and other sources of income like a carwash -because they can't make enough money on gas to pay for the store!

Want to blame somebody for your ’pain at the pump’? There are more targets than I can list here. But the list doesn’t include the guy trying to make a living off a dime a gallon. You can resent the mega corporations who are scrutinized daily to a point few of us would survive, but they're doing what they are supposed to, and are greatly benefiting their stockholders.

Hmmm… maybe we should blame the politicians?

[JimGolden]

This is all well and good. But why has the price of fuel tripled? I've heard many reasons. Here are a few: (1) The war in Iraq is taking it all (2) India and China are buying a bunch and driving the price up (3) The guys on Wallstreet saw opportunities to run the prices up, and so they did (4) Politicians with oil interests caused it all to line their pockets I believe (3). (1) falls apart when you consider that the war went on for three years before fuel went up (2) accounts for some, but not all of the rise (4) I hope to goodness that is not the cause. The oil companies are most certainly making much larger profits now than ever before. However, they did not cause it. The futures traders did. I don't know anybody who ever got angry at a gas station owner for gas being high. They might vent to the gas station guy, but they know it's not that guy that sets the price. They are just like the grocers...you make a pittance on every piece of food so you have to move a bunch of them. Nevertheless, if it keeps on going up, it is really going to hurt the economy. It is already, but it will worsen. And yes, I am questioning the wisdom of owning a diesel pickup now. It tows beautifully, but for the 99% of the time that I'm not towing a Hemi powered with cylinder deactivation truck would be less trouble, quicker, cheaper to maintain, and more flexible on where I have to stop for fuel.

[byamcaravanner]

Originally Posted by JimGolden

I don't know anybody who ever got angry at a gas station owner for gas being high.

But they would get mad if the owner had no gas to sell... this is why the commodity traders will pay what they must to keep the supply flowing.

[Minnie's Mate]

I don't agree with Tin Diesel's logic. Some of it is true, BUT...gas was roughly one third of what it is today steadily up until Hurricane Katrina. All the while the number of refineries in the U.S. dropped from 14, IIRC, to 5. A loss of output capacity.

Until Hurricane Katrina, refineries went off-line for maintenance on a regular basis. In fact, at any given time there was one refinery down for maintenance and the others were in operation and gas prices were steady. All of the sudden, Hurricane Katrina comes along and knocks out a refinery in the Gulf Coast area temporarily and BAM, as Emeril would say, and we have a refinery down and the price of gas starts to escalate. As soon as that refinery comes back on-line, one of the remaining refineries goes down for maintenance and the news reports that this is why the gas prices does not go back down, but instead continues a steady increase. As soon as that refinery comes back on-line, another one goes down for maintenance. The cycle is the same as pre-Katrina...there is always one down, but the price of gas doesn't come back down...it doesn't even stabilize...it just keeps going up and up. Now there is a threat of a U.S. recession so there is expected to be a decline in demand in the U.S. so gas prices should start to go down. Not exactly.

My local Race Trac station that does so much business that their prices respond quickest to any variation in wholesale gasoline prices did start a decline in price. The price for regular dropped from $3.01 all the way to $2.83 and then it leap frogged to $2.94 in one day. The next day the price dropped one penny and the very next day the price jumped to $3.05! It is like the powers that be (who ever you want to blame) want to let us think they are going to let us win at this war and then, BAM, they take back all the ground they let us have and then some.

Does it matter that the CEO of Exxon-Mobile isn't the highest paid executive in the U.S.? No. Does it matter that the majority of the stock in Exxon-Mobile is owned by Institutional investors? No. What matters is that I listen, or in this case read, the arguments for why gas prices, and diesel prices are at an all time high and I don't buy it. (figuratively speaking) While I don't think we are a bunch of millionaires here, I do think most of us don't live pillar to post, but I know some that do and it is those folks that I am concerned about when I see $3.05 for a gallon of gas. If I don't like spending $3.45 for a gallon of diesel, I can go up-side down, take a hit on my truck's value and buy a hybrid and get better fuel economy for my daily commute. But I know plenty of people that drive older cars that aren't fuel efficient and can't afford to trade for new or even newer cars that are more efficient. It is those people that I worry about, not me. It is for those people that I praise God for when I see even a penny drop in gas prices. It is for those people that my heart aches when I see a $.09 rise in gas price in a single day.

[Journalist]

The answer to it is simpler than most people would like to believe. Oil companies figured out they could make a ton of money by artificially cranking up the price of gasoline and diesel, so they did just that. They have figured out that any little thing reported on CNN involving a natural disaster or anything at all in the middle east is an excuse to bump the price up. Take a look at the Dept. of Energy's website. We import most of our oil from... drum roll, please!... CANADA!!!!! It's been that way for years. Should we blame the Canadians?
As for the price of diesel being higher than premium gas, that one is simple too. Our nations entire infrastructure runs on diesel fuel. Our transportation industry is almost exclusively diesel powered, to the point that our economy would shut down without it. The military is also completely diesel powered. We have to have the stuff, so they can charge pretty much whatever they want for it even though it costs less to produce and a barrel of oil will make more of it than gasoline.

[byamcaravanner]

Originally Posted by Journalist

Oil companies figured out they could make a ton of money by artificially cranking up the price of gasoline and diesel, so they did just that.

Journalist,
Get your "facts" straight. Oil is a traded commodity, the price is determined by what a pair of traders are willing to buy/sell for. If you have more buyers than available supply, the price goes up. The only two things that can increase the price is a shortage of supply including as you correctly point out, the threat of a shortage and an increase in demand. On the supply side, the oil companies have certainly not been the ones obstructing development of the oil supply. On the demand side, China has been gulping up all the oil it can buy... this was not the case a few short years ago.

The "simple answer" is not to lay blame on "big oil"... it's to facilitate the oil industry in developing the extraction and production capacity to meet the demand.

[Journalist]

Originally Posted by byamcaravanner

Journalist,
Get your "facts" straight. Oil is a traded commodity, the price is determined by what a pair of traders are willing to buy/sell for. If you have more buyers than available supply, the price goes up. The only two things that can increase the price is a shortage of supply including as you correctly point out, the threat of a shortage and an increase in demand. On the supply side, the oil companies have certainly not been the ones obstructing development of the oil supply. On the demand side, China has been gulping up all the oil it can buy... this was not the case a few short years ago.

The "simple answer" is not to lay blame on "big oil"... it's to facilitate the oil industry in developing the extraction and production capacity to meet the demand.

If the price of oil is driving the increase is gas prices, then explain why so called "big oil" is making record profits. If the increase was based solely on the increase in the price of oil, shouldn't their profit margin remain roughly consistent? You are simply parroting the BS that they've been feeding us for the last couple of years. Keep in mind, the same people telling you that are the same people who, not long ago, preached the glory of E-85.