Why is diesel so expensive?

[tallyho8]

For many years after I started driving in the 1960s, diesel was cheaper than gas. In later years, diesel was changed to help the environment and it got to be 5 0r 10 cents a gallon higher than gas for quite a few years. Lately, it has gone crazy. Today, gas at the stations I usually go to is $2.95 a gallon and diesel is $4.95 a gallon. From what I have been told, it is cheaper to refine diesel than gas. How could it possibly be worth $2 a gallon more than gas?

I get 20 mpg in my gas pickup and 24 mpg in my diesel pickup but my diesel has practically been mothballed lately.

 

[jaxs]

Ever heard "what the market will bare"?

 

[Ken45101]

My truck (2007 C3500) probably only had 100 or so miles this year until this past weekend when we went camping with the horses in SE Ohio, 240 miles round trip at 10 mpg But it was the first time since 2014 that the camper was out of the barn. Prices are ridiculous but from what I've heard, the harvest will be down significantly this year because of fuel and fertilizer prices. Our food supply is going to be significantly hurt, plus higher transportation prices for the farm products and food. The worst is probably ahead.

 

[ponytug]

Diesel supply is complex, but here is my top level TL;DR version.

Different grades of crude lend themselves to making different ranges of hydrocarbons. While you can refine tar into diesel, you would lose a lot along the way.

The US is a major consumer of gasoline (light hydrocarbons), while Europe on the other hand consumes a lot of diesel, due to how cars are taxed there. That lead to a relative surplus of diesel in the US, and a relative surplus of gasoline in Europe. So, there used to be substantial cross Atlantic refined hydrocarbon traffic, taking excess diesel to Europe, and bringing excess European gasoline to the US that was quite profitable.

A couple of things cut into that cross Atlantic trade; first, global demand for diesel has gone up as more trucks in other places need fuel, that brought the US price for diesel closer to global prices that were much higher, and 2) as the prices altered, refineries have tweaked their production levels of gasoline and diesel, so there isn't a surplus of diesel.

So, as @jaxs points out, it ends up being market price driven.

It has been coming for some time. I did the math on a diesel vs gasoline pickup back in 2012, and figured that I would never save money on lower cost diesel. For the last decade, that has been true, and I expect it to continue to be the case.

All the best,

Peter

 

[ponytug]

My truck (2007 C3500) probably only had 100 or so miles this year until this past weekend when we went camping with the horses in SE Ohio, 240 miles round trip at 10 mpg But it was the first time since 2014 that the camper was out of the barn. Prices are ridiculous but from what I've heard, the harvest will be down significantly this year because of fuel and fertilizer prices. Our food supply is going to be significantly hurt, plus higher transportation prices for the farm products and food. The worst is probably ahead.

Harvest is down due to drought.

Costs are up due to diesel and fertilizer prices.

 

[WM75Guy]

It is a complex issue for how the price at the pump is determined. Refining costs are just one part of the equation. The price of crude oil plays a part. A $10 rise/fall of the price of crude gives roughly a $0.25 rise/fall at the pump. As was said supply/demand also come into play when buying finished products on the spot market, the less there is of a product the higher the price, especially on a regional level. Distillate fuel oil (diesel) stocks are 20% less than a year ago for ULSD inventories, 95.4 million barrels compared to 113.2 million barrels a year ago.

For a while we were a net exporter of crude oil, which some incorrectly described as being energy independent. We still depend on the world market for some products. Now we are back to a net importer of crude oil. US refineries like to use heavy crude as you get more products out of it. We import heavy crude to refine here at home. Overseas refineries are set up to use light crude, like West Texas Intermediate (WTI). We send our light crude overseas to be refined and bring the finished products back. For all petroleum products we are currently a net exporter.

Also oil wells have a lifespan. Typical is 30 years. You get roughly 50% of the total production in the first 3 years and then it slows down. When it gets to where it costs more to operate than what it produces you cap the well. You have to drill new wells to replace the capped wells to keep production steady. More wells going offline than coming online affects the inventory.

In West Texas it takes about a year to get a well online. You have to get the permit to drill from the Texas Railroad Commission, drill the well, install the production equipment, and get it tied to the transmission network, if there is already a system of pipelines in place. Getting ROW and laying new pipelines is time consuming. Most new wells are horizontal wells instead of vertical wells. Because of the number of new horizontal wells going in, the pipelines are having to be upgraded to handle the larger capacities. Horizontal wells can produce 10 times more barrels a month than a vertical well, 20,000 barrels/month compared to 2,000 barrels/months for a vertical well. Put 8-10 wells at one drill site, which is common, and you quickly exceed the ability of existing pipelines to transfer the oil and gas to the refinery or port terminal.

Weekly Petroleum Status Report - U.S. Energy Information Administration (EIA)

www.eia.gov

 

[MossRoad]

For many years after I started driving in the 1960s, diesel was cheaper than gas. In later years, diesel was changed to help the environment and it got to be 5 0r 10 cents a gallon higher than gas for quite a few years. Lately, it has gone crazy. Today, gas at the stations I usually go to is $2.95 a gallon and diesel is $4.95 a gallon. From what I have been told, it is cheaper to refine diesel than gas. How could it possibly be worth $2 a gallon more than gas?

I get 20 mpg in my gas pickup and 24 mpg in my diesel pickup but my diesel has practically been mothballed lately.

Why are diesel fuel prices higher than gasoline prices?​

On-highway diesel fuel prices have been higher than regular-grade gasoline prices, on a dollar-per-gallon basis, almost continuously since September 2004. This trend is a break from the previous historical pattern of diesel fuel prices usually being lower than gasoline prices except in cold winters when demand for heating oil pushed diesel fuel prices higher. There are three main reasons why diesel fuel prices have been higher than regular gasoline prices in recent years:

• Demand for diesel fuel and other distillate fuel oils has been relatively high, especially in Europe, China, India, and the United States.
• The transition to less polluting, lower-sulfur diesel fuels in the United States affected diesel fuel production and distribution costs.
• The federal excise tax for on-highway diesel fuel of 24.3 cents per gallon is 6 cents per gallon higher than the federal excise tax on gasoline.

From here:

Frequently Asked Questions (FAQs) - U.S. Energy Information Administration (EIA)

www.eia.gov

 

[Grumpycat]

As @ponytug said, refiners can only get so much gasoline and so much diesel from a barrel of crude oil before increasing the percentage of one or the other greatly increases costs. Can't make diesel-only or gasoline-only as cheap as they could throw away the part they didn't want. That is how gasoline came to be, producing lamp and heating oil, gasoline was the light trash byproduct until Rockefeller and Standard Oil found an application.

When gasoline demand goes down then diesel supply suffers because when less gasoline is being made they make less diesel. What happens is they make more gasoline then dump it on the market cheap to stimulate demand in order to have enough diesel.

 

[Larry Caldwell]

U.S. Fuel Exports Are Draining Domestic Diesel And Gasoline Supplies | OilPrice.com

Record volumes of fuel are being exported from the Gulf Coast, which is draining domestic supplies of both gasoline and diesel

oilprice.com

 

[California]

Oil companies reap unprecedented profits as Americans struggle to pay for food and gas

Soaring energy prices baked into delivery costs are driving up the cost of everything from apples to toilet paper.

www.cbsnews.com

and

net income for the world’s oil and natural gas producers is set to double in 2022 from 2021, to a new high of $4 trillion. “Today’s high fossil fuel prices have generated an unprecedented windfall for producers,” the Paris-based agency said in its World Energy Outlook, released this week. (NYT)