Supply and Demand for Diesel Fuel

• During the summer of 2008, the prices of gasoline and diesel fuel both reached unprecedented levels up to that time, in part because of speculation that the price of oil would increase based on strained global supplies. While gasoline is primarily used as a fuel for individuals in cars and other engine-operated devices, diesel is used heavily in transportation and industry. When the economic crisis began to firmly grip on the economy toward the end of the summer of 2008, gasoline prices began to fall rapidly as oil prices dropped and individuals cut their gasoline consumption. Since diesel fuel is an industrial fuel, which is often ordered far in advance, industries cannot cut back on usage as quickly, which kept diesel prices higher. In addition, growing industrial countries like China and India are putting increasing demand on diesel fuel, and in Europe a large percentage of personal vehicles also run on diesel, further straining supplies. So, while diesel prices have often been significantly lower than gasoline prices, shifts in supply and demand can actually cause either type of fuel to be priced higher than the other.
  
  

Distillate Is Used to Make Other Fuels

• Another factor that leads to higher diesel fuel prices is that the distillate fuel oil that is derived from crude oil can be refined into fuels other than diesel. For example, heating oil and kerosene are other fuels that can be produced from distillate. In cold winters, the demand for heating oil and kerosene increases, while demand for gasoline typically drops. The result is upward pressure on diesel fuel prices, since more heating oil is produced instead of diesel fuel to meet demand, while gasoline prices are falling.
  Another reason for a discrepancy in supply is that less diesel fuel can be produced from a single barrel of oil than gasoline.
  
  

Other Factors That Affect Diesel and Gas Prices

• Apart from economic conditions and fuel substitutes, several other factors tend to push the price of diesel above gasoline. In the United States, the tax on diesel fuel is 6 cents higher than the tax on gasoline. In addition, new environmental regulations imposed on diesel fuel, which make it burn cleaner and release less sulfur into the atmosphere, increase the cost of refining it. Another factor that could affect the relative prices of diesel and gasoline is that individuals are becoming increasingly aware of car fuel economy, increasing sales of fuel-efficient vehicles and hybrids, which puts downward pressure on gasoline prices while leaving diesel prices unaffected.