Factors Affecting Diesel Fuel Prices

Is the stability of diesel fuel going to last? While the pricing has leveled off, there are still concerns about the future pricing of diesel fuel. For example, many consumers are wondering if we’ll see those record-high diesel prices again. Exactly why did fuel prices get so extreme?  Using a survey, consumers think that it was the corporate greed factor of the major oil companies that acted as the catalyst to drive up fuel prices (gas & diesel) to record highs in July. Others talk about the investment houses on Wall Street creating the spike in pricing due to their manipulation of the oil markets. Everyone is entitled to their own opinion and are free to speculate, however we always try to steer away from opinions but instead focus on hard facts.

Many do not realize that weather condition and seasons impact the demand for fuel. For instance, throughout summertime, many families drive their cars for getaway. One or two families can not influence the price of diesel however summertime getaways occur internationally. This increases the need for oil and drives the rates up. Winter season is no different. In the cold weather regions of the United States, many people decide to remain indoors when the outside temperatures drop. This places an increased demand on the heating oil supplies. That increased demand translates into an increased price for heating oil and diesel.

Demand is a huge element that impacts the fuel costs. Consumer demand drives the pricing of any fuel based product up. The demand issues are not just confined within the borders of the United States. The boost in the manufacturing coupled with the rapid increasing demand for diesel in emerging countries including like China and India has had a significant impact to the spike in diesel fuel rates. Domestically, the lower price point of diesel vs gas has created a surge of purchases for diesel based cars. In 2007, 50 % of the overall registrations in the United Stated are diesel motor vehicles. China has seen a growth of vehicle purchases directly connected to the expansion of their economy. India exhibits a similar growth and it is interesting to note that 30 % of their automobile sales are diesel vehicles. European markets are displaying similar trends. They have seen more diesel automobiles sold than gasoline.

Prices are dropping now. We’re seeign a drop of the price per barrel. The record high was around $140/barrel. Now we’re seeing crude oil pricing hitting $40-$60/barrel. This is translating to a drop in pricing at the pumps. One contributing factor to this price drop is the financial crisis that is impacting many countries throughout the world.

Greater Federal Tax – The federal tax on diesel is 6 cents higher per gallon than gas. This artificial price imbalance also leads to a manipulation of the gas vs. diesel markets. Taxing at the state level also plays a factor in the price that consumers see at the pump. For example, New Jersey has lower state taxes than Pennsylvania, i.e. lower gas prices in NJ vs PA.

Environment – Ecological limitations likewise play a role in driving the rates up. Legislation in the United States has forced energy suppliers to provide ultra-low sulfur diesel fuel. This has been in effect since 2006. Producing ultra-low sulfur diesel fuel is extremely pricey and refiners have no choice but to pass on the expense to consumers.

Transportation – Transport expense likewise increases the cost of diesel. Typically, fuel costs will spike if the range between the seller and the distributor is expanded.  It is for this reason that some geographic locations within the United States have different fuel pricing than others. For example, regions that are farther from the Gulf Coast tend to have higher fuel prices.

As you can see, there are many factors that go into the pricing of fuel. Having a better understanding of the factors will help you understand and recognize why fuel prices go up and down.

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